Merchant Advance Blog

Blog Article: Four Questions To Ask Before Selling Your Business

For any small business owner, there may come a certain moment of realization: it’s time to move on and move forward. Whether that means transferring control of your business to the next generation of your family, getting out of the market outright by selling your business to someone more interested in running it, or attempting to profit from the turnaround of an old business into a new, more valuable one without the pressure of continued management, the principles are effectively the same. There are some key steps involved in selling your business – steps that will prepare you for the process, ensure a smooth transition, and prevent you from being saddled with financial challenges.

real-estate-for-sale-sign

Here are four key questions you can ask when it comes time to think about succession or sale of your small business.

1. Do I Have Time? Is It The Right Time?

The motivation to sell or transfer control of your business to someone else needs to align emotional, logistical and economic factors. The process of selling your business will take time away from the operational responsibilities that you already have to budget for. Can you afford to shift your focus in this way?

The average house will sell in less than four months, while the average business sale is nine months to a year. And, much like the housing market, the market interest in small businesses will fluctuate over time. Even after the business is sold, you may desire to stay onboard for some time (depending on the circumstances) to oversee the transition to new ownership.

2. Do I Have A Plan?

According to research by Small Business BC, the majority of small business owners are not adequately prepared for their business’s succession: only 10% have a formal, written succession plan, 38% have an informal unwritten plan, and the remaining 52% do not have any succession plan at all. Your plan should include the following provisions:

  • Ensure your business’s future financial stability and value of your business
  • Reduce the potential tax liabilities of transferring ownership
  • Set a timetable for transfer of ownership to your successor
  • Contribute to the growth of the business in terms of market share, profitability, and size
  • Provide stability for employees

3. Have I Talked to the Right People?

Other than your employees and other internal stakeholders, there are numerous individuals and groups who ought to be consulted, advised or informed about the coming changes. First among these should be your customers! You have worked hard to build their loyal patronage and trust: even in the event of a change in ownership and/or management of your business, they should know what’s in store as they are part of its value.

Other key participants in the conversation surrounding a succession or sale include your vendors or suppliers. Should they expect any changes or disruptions? Will they be dealing with new people in your company?

Though it may not seem immediately obvious, your competition also forms part of the discourse when considering a sale or succession. If you want to sell your small business yourself, confidentiality is lost.  What will your competition do if word gets out that you are for sale? Consider the effect of this factor on your successors.

 4. Can I Get Help?

There are a range of variables and considerations that need to be incorporated into the successful sale of a business. From valuation to legal status, timing to tax effectiveness, documents to deliveries – it’s not exactly as simple as selling a house. However, much the same as in the world of real estate, there are advisors and consultants who can help consolidate the necessary documents, find the right time and the right pool of potential buyers, and ensure that the transition goes smoothly once you’ve found one.

You should at least enlist the help of your accountant and lawyer to assist you with the many technical aspects of your succession plan, but consider that selling your business yourself may be the kind of thing that a specialized advisor should assist with.

 

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