When the owner of a small business thinks about selling their company, they are more or less deciding how to best take advantage of an asset. The decision is not easy, and many things must be considered before making this difficult choice. This article will explore some of these considerations to make an informed decision on what is right for your business.
1. Determine if you want to sell your business at all
You may be considering retirement or just wanting to diversify your interests in the marketplace. Before making any decisions, you must weigh out the benefits and drawbacks of such a drastic change in lifestyle and ask yourself: Why am I considering this? What do I hope will come from the sale?
2. Talk to a business broker
An excellent business broker can give you an idea of what your business is worth and what the current market for small businesses looks like. They will also help you create a sales package that will make your business more attractive to potential buyers.
3. Know your reasons for wanting to sell
There are many reasons why an owner might want to sell their small business. Common reasons are retirement, wanting to move on to a new venture, health issues, or being no longer profitable. Figuring out your specific reasons for wanting to sell will help you better assess your options and make the best decision for yourself and your company.
4. Consider your time commitment
A business sale is a big decision that will significantly impact your life. Although most small business owners wish to retire or pursue other interests, they often find that these changes are not as fulfilling as expected. For this reason, it’s important to consider how much time you want to spend on the day-to-day workings of your business when making this choice.
5. Understand what you’ll need to be ready for the sale
It takes more than just wanting to sell your business for it to happen. There are several steps in place before you can make this transition smoothly and quickly. Some of the requirements include:
- State Sales Tax Certificate (if applicable)
- Certificate of Good Standing (for corporations)
- Appointment of Agent (if applicable for corporations)
- Memorandum or Articles of Incorporation
- Minutes
- Bylaws
Talk with your business broker about what you will need to do for the transition to be as smooth as possible.
6. Determine your reason for selling your business
You must decide whether you wish to sell your business because you are retiring, looking to reengage in another endeavor, changing careers, or just want additional cash flow. Once that is done, then begin working closely with a business broker who can provide guidance on how best to sell your business and inform them on the reasons why you want to sell it. A good business broker will advise you on the best time to sell your business and offer guidance for how to position it in a way that draws potential buyers.
7. Consider how much money you’ll need from the sale
When looking at what your business is worth, keep in mind that this amount won’t necessarily be all profit. You’ll have to pay taxes on the earnings from the sale, plus any other debts or issues you might have with outstanding loans or legal matters. A good business broker can help you determine a number that will allow you to either maintain or grow your assets following the sale and provide advice on how best to structure a deal so you can reach those goals.
8. Understand tax implications of selling a business
Any business owner thinking about selling their business should seek legal advice to understand how the sale will affect their taxes. If you own the business as an individual or as a part-owner rather than through your company, any gains you make from the sale are taxable at your personal income tax rate. Once again, it’s best to consult with your business broker and accountant so that you can position yourself for future success following the sale of the company.
9. Make sure you have a plan going forward
Following a decision to sell your business, a lot of time and money will be needed to complete the process successfully. Many companies fail to consider this before making a decision on whether they wish to sell their business. You should have a plan for how to use those funds, as well as the time you’ll spend on finding a new business venture or project.
10. Thank your employees
It’s important to respect and appreciate your team’s hard work before deciding on whether you want to sell your business. It is an opportunity to thank them for their contributions over the past years and a chance to remind them that if the sale does occur, they will likely remain with the company under new ownership, which can help boost morale and reduce turnover rates in some cases.
Selling your small business is a major decision that should not be taken lightly. Make sure you understand what is involved in the process, from preparing for the sale to understanding the tax implications. Work closely with a business broker to get their expert advice and guidance throughout the entire process.
Thank your employees for all their hard work, and remind them that they may still have a job under new ownership. Finally, have a plan in place for what you’ll do following the sale of your business. This will help ensure a smooth transition and minimize any negative consequences.
