Preparing to Sell Your Business

If you are like most entrepreneurs, your business is more than your income stream: it is your life. You have poured countless days and nights into delivering quality to your customers, increasing your market share, capitalizing on new opportunities, weathering bad quarters, and have done all of this at the expense of your free time. At some point, you must have thought, “It sure would be nice to reap a large return here so I can retire on a beach with no cell phone or email.”

The next time you long for a life without monthly revenue forecasts, pull out this guide to help you plan your next steps.

When is the right time?

If you meet one or more of the following conditions, it is probably time to start planning your exit from the business:

1. When you have something incredible to offer the market and buyers or investors are hungry for it;
2. When your business’s services, products, technology, and/or model has expanded beyond your know-how in this adapt-or-fold market;
3. When you feel burn out coming and are ready for new adventures whether that be a new business or that house in the country you have your heart set on; and/or
4. When you are approached with an attractive offer.
5. When you are not getting along with fellow shareholders or the family business dynamics have gone sour.

Give some thought to your preferred exit strategy

Who is the buyer?

Planning your exit strategy first involves identifying who is available to buy your business. This can get complicated, quickly.

For instance, if you are the only owner of the company, you will need to sell to a buyer who is either

1. another entity that seeks your assets (e.g. customer contracts, equipment, retail locations, etc.); or
2. an individual who has sufficient cash (e.g. an employee or an outside investor).

If you are not the only owner, you can sell your ownership interests to

1. the other owner(s); or
2. back to the company.

Alternatively, if all of the owners in your business are ready to sell, your buyer is likely going to be a

1. competitor;
2. business looking to expand into a new market niche; or
3. venture capital or equity firm.

How will you get paid?

Regardless of who your buyer is, your primary focus is going to be securing favorable purchase price. Ideally, you want a buyer who has sufficient cash-on-hand to purchase you outright in a lump sum, or who can obtain financing to do the same. More often than not, your buyer will negotiate a lump sum payment combined with structured payments overtime as they either secure financing and/or earn revenue from the business they just bought from you. Consider your personal risk tolerance as well as how various payments will impact your personal finances.

Will you work for the buyer?

Next, determine whether or not you want to stay in the business and if so, in what form. Often buyers negotiate employment contracts with the seller or key members of seller’s leadership team to help transition customers to the buyer and provide critical institutional knowledge about the business’s market niche. Meet with your trusted advisors including your attorney, certified public accountant, wealth manager, and your leadership team or the other owner(s) to create a plan for your preferred involvement level. This will help you select the right buyer for your business, and flesh-out your non-negotiable deal terms.

Prepare for the sale

When you have identified your preferences for how you will exit, then it is time to prepare your business for sale. Conduct the three following tasks so that you are ready when a buyer starts their due diligence efforts:

1. Ensure your financial books, tax returns, tax payments, debt, and entity records are current;
2. Conduct an internal audit of your physical and intangible assets to understand what you have and the value of each including: intellectual property, equipment, inventory, real estate, technology, processes and systems, and competitive advantage; and
3. Understand where your worth is held: is it in the skill of your employees, in your relationships or acumen as the owner, your product, the technology you have developed, or your contracts with key customers?

Using this roadmap to identify your preferred buyer, a few non-negotiable deals points, and prepare your business for sale will position you well whether you make the sale in the next quarter or the next five years.

Contact our skilled legal team in Pleasanton, CA today

We at Garcia & Gurney are happy to assist you. Contact our firm online or call us at (925) 468-0400.

Disclaimer: The contents of this article should not be construed as legal advice. This article is not an exhaustive list of issues that may arise in the sale of a business. Sellers should seek the assistance of an attorney who will analyze multiple factors unique to each kind and size of business.