10 Questions Every Owner Should Answer Before Selling Their Business

August 31st, 2017

You’ve taken years, perhaps decades or generations, to build your business. Emotionally, you believe you’re ready for a sale. Professionally, you think you’ve taken your business as far as you can and it’s ready for new leadership. What about corporately? Is your business well positioned for a sale? Honestly answer these 10 questions to find out.

  1. How is the market for my business? You hear about transactions in your industry and you think the market is strong for your particular business. It is quite possible that sales are only taking place in a specific sector of your industry that you don’t operate in. In collections, for example, no one is buying a student loan collection agency until the U.S. Department of Education (ED) finalizes its unrestricted contract process. If you’re serving student loans, it would be best to wait until the ED procurement process gets resolved before entering a sale process, regardless of your company’s individual performance.
  2. Is my financial house in order? Make sure you can produce at least five years of historical financial statements and tax returns before engaging in dialog with a potential buyer. Historical statements are only the beginning. The buyer will want to see every financial ledger and calculate the true earnings of your business. They will also scrutinize every aspect of your balance sheet so you’re better off doing this with an objective professional in advance.
  3. Is the value that I place on my business realistic? You think your business is worth a certain amount because your industry trade association told you that a certain “rule of thumb” exists when it comes to valuing your business. There are no short cuts when it comes to valuing your business. Get an honest assessment of value in advance of a sale. You might be pleasantly surprised that your business is worth more than you anticipated.
  4. Am I ready to tell my leadership team about a sale? Your leadership team played a critical role in positioning your business for sale. Perhaps one or more executives have established direct relationships with your key clients. Maybe you have a key operator that runs the company while you’re out selling your services. You know your leadership team adds considerable value to your operation but you’re petrified they may leave if you bring up the topic of sale. If you’re not ready to tell your leadership team, you may not be ready to sell.
  5. Is this the right time to sell my business? If your business is consistently performing well and is growing year over year, yet there is still plenty of room for growth, the timing might be perfect for a sale. A buyer is typically looking for a growth business to acquire and should be willing to pay for strong performance. If the business has peaked, or worse is on the decline, the price and structure will reflect performance.
  6. Is my business well positioned in this changing marketplace? Your business used to print money. It was truly a cash-cow that generated significant income with minimal investment. Today, the cost of operating your business has never been higher. Clients demand more and want to pay less. The risk of lawsuit has never been higher. If simply keeping up has become a costly struggle, it might be time to sell to a larger operation that is well positioned in your marketplace.
  7. Can my business perform without me owning it? If the buyer is concerned the selling business is too dependent upon the current owner, they will look to structure the transaction around retention of the owner, lower the purchase price or not pursue the acquisition at all. The answer is to make yourself expendable as soon as possible so you can leave at closing or after a short transitional period.
  8. Is your business dependent upon one client? Client concentration is a major concern among most buyers. They will most likely structure the transaction around the retention of that client. By diversifying your client base, you remove arguably the biggest concern that a buyer will have when it comes time to sell your business.
  9. Should I stay or should I go? You own your business and never worked for anyone else. Can you perform well knowing you no longer own the business? You are an excellent salesperson but you struggle when it comes to operations. Perhaps selling and staying aboard to focus your efforts on sale is the answer. Knowing your preference in advance of sale is critical.
  10. Are there any deal breakers within my business? Unresolved issues could end negotiations. The buyer will turn your business upside down and look at absolutely every financial, legal, operational and technical aspect of your business before closing a transaction with you. Knowing that, position your business for a successful outcome by addressing potential concerns in advance of a sale. Settle that lingering lawsuit. Make that capital investment. Negotiate that lease.

We can help you to objectively look at your business and determine if your company is ready for a sale. Contact us to schedule a confidential conversation with one of our advisors at hq@kaulkin.com.

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