- Develop a plan for retirement or your next phase
- Ensure a smooth transition by tidying up your books before selling your business
- Sell for the right price to the right buyer
7 Critical Questions To Ask Yourself Before Selling Your Business
Selling your business can be a huge decision that can have both major ramifications for its future, and it’s something that you may have mixed feelings about emotionally.
If it’s a business that you’ve built from the ground up, the emotional attachment is even greater because you’ll now be leaving it in the hands of a new owner.
But there are even more reasons why 75% of business owners end up regretting selling their businesses within one year of completing the transaction. There is actually more planning and more consideration that has to be done for the next phase of your life than you might realize.
With this in mind, here are seven questions to ask yourself before selling your business.
1. Do You Still Love What You Currently Do?
Maybe at one time, you made a promise to your family or to yourself that you would sell off your business at a certain age, and maybe now you’ve reached that age. But are you still in love with what you do? Do you still have both the same physical strength and passion to keep doing what you’re doing and are now uncertain if you really want to exit?
If you’re currently happy and are still able to keep your business successful, it may not hurt to postpone leaving it. Perhaps you might take just a little longer to get your next plans in order while continuing on as usual.
2. Have You Actually Developed A Plan For Retirement Or Your Next Phase?
Sometimes people just don’t realize how accustomed they’ve become to current habits, or they aren’t aware that fulfillment in retirement usually won’t come from spending all their days fishing or playing golf. Before selling your business, ‘what will I be doing with my time to keep myself challenged‘? Perhaps you might start a smaller, less stressful part-time gig aimed at helping people rather than building wealth. You might decide to join an advisory committee for a charity or non-profit organization you’re passionate about, or you might have other aspirations.
But think long and hard about what your future life will be like.
3. Would It Be Better To Do A Transfer Of Ownership Rather Than A Full Sale Of Your Business?
Selling your business to an outsider is a process that can take a long time, and even though you’ll be leaving your business eventually, you may not be comfortable with the risk of a new owner making a lot of changes to it.
Before selling your business to an outsider, could you do a transfer of ownership to one of your children, someone else in your family, or to one of your trusted employees?
There are business transfer structures that can be put in place such as Employee Stock Ownership Plans in which an employee can purchase the ownership shares and succeed the current owner. With a move like this, you also may be able to gradually phase out your role in the business while turning over control to your successor. Even an outsider may ask you to stay on for a little while in an advisory role, but in doing it this way, you may have a little more leverage to leave on your terms.
4. Have You Done Everything You Can In Order To Alleviate The Concerns Of Employees And Customers?
When you’re making that decision to sell, probably nobody is closer to your heart than your hard-working employees and loyal customers who you’ve built lasting relationships with over the years. You want to be sure that you have answers for them about who will be taking over, and that you can tell them that their needs were taken into consideration during the process.
Be honest about potential changes that could be coming, but make sure you assure them that they will not be left behind during the transition. You should make sure the new owner knows how important certain employees and customers are to your business and get their assurance that they’ll look out for those employees and customers.
5. Are You Prepared To Tidy Up Loose Ends Before Leaving?
Before selling your business, be aware that there can be legal issues that may arise with certain debts, liabilities, intellectual property rights, contracts and other loose ends that should be tied up. A new owner who knows what they’re doing will do their due diligence on your business to make sure their purchase of it wouldn’t put them in any legal jeopardy. So you should take the time to make sure any unresolved problems are taken care of so that potential buyers don’t back out of the sale.
6. Is The Market Actually Good For Selling Your Business Right Now?
Timing is paramount in selling a business because there are times when the economy and certain industries are performing well, and buyers come calling. Plus you should also make sure the overall value of your business is still rising or in a good place, because that too will have an impact on buyers.
If it still has a lot of room to grow, the buyer should be one who can take it to the next level. Selling during a recession, on the other hand, will leave you on the short end of the stick.
7. Have You Found An Investor To Sell Your Business To?
An experienced investor who buys businesses for the purpose of growth is one of the quickest ways to sell a business and achieve all of your sales goals. Investors are interested in growth, so they’re more likely to keep employees on board.
Also, they’re typically experienced in your industry and have a well-established team in place to help with finances, legalities. HR, and more.
Finally, when it comes to pricing, they are more flexible than a business broker who works on commissions and is only looking at the price. There may be other terms (such as installment payments for multiple years) that are important to you and the end buyer that just aren’t important to the broker because they’re not compensated for it. For these reasons, selling directly to a business investor can be the best way to go.
Summary of 7 Critical Questions To Ask Yourself Before Selling Your Business
In theory, selling your company, cashing out, and retiring sounds great. But after 1 year, over 70% of those who sold are dissatisfied with the sale in one way or another. By asking yourself some tough questions beforehand, you can determine whether or not you truly want to sell and take the necessary steps to make sure you get the most enjoyment out of your post-sale life.
If you have any questions about what to do before selling your business, please feel free to contact us.