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Home > Blog > The Do’s and Don’ts of Selling a Business

The Do’s and Don’ts of Selling a Business

January 13, 2016Filed Under:  Blog

Thinking about selling your business? The value of your business probably represents a significant percentage of your total net worth. If you wish to adequately fund the retirement lifestyle you have earned, you must get every last after- tax dollar and get paid substantially all in cash when selling your business. Here are seven proven strategies for receiving the most value for your blood, sweat and tears.

1. Preplan the sale of your business. This should not be a spur of the moment decision. Rather, it should be well planned in advance. Conventional wisdom dictates that the average American spends more time plannng their vacation than their retirement. While small business owners as a whole do not have the “average” mindset, it is vital that the proper planning goes into the sale to maximize the value.
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2. Maintain complete confidentiality. It is vitally important that your employees, competitors and customers not be aware of your plans, as the loss of employees or customers can rapidly decrease both the value and marketability of your business.

3. Do not put a price on your business. Once you put a price on your business, you create a ceiling, and you miss the opportunity to find the ideal buyer who would have otherwise paid more.

4. Recognize the importance of finding the right buyer. Most businesses don’t have a value that is set in stone. Rather, they have a range of value. This means that different buyers will have different perceptions of the same business’s value. Therefore, it becomes important to pre-plan your confidential marketing effort to gain exposure to multiple buyers, especially synergistic buyers;meaning those buyers who, because of their location, complimentary customer base, financial resources, or market position, can profit more from owning your business and are therefore willing to pay more.

5. Recognize the risks in financing the buyer. Your objective should be to get at least 90%“cashed out”, as the risks involved in financing buyers are very considerable. Be prepared to take at least 10% of the Purchase Price in a Seller Note. These days all knowledgeable buyers want the Seller to have some “skin in the game”.

6. Get professional help. Unless you have a background in taxes, legal issues and merger and acquisition work, you will probably unknowingly make a multitude
of costly mistakes by trying to sell your business yourself. In fact, those mistakes, when combined with money lost from a transaction that doesn’t yield the best possible value, will typically cost you substantially more than any professional and competent assistance would require.

7. Do not pay advance fees. While you ultimately will need help in determining the value of your business and will need the right merger & acquisition firm to take you to market, what you don’t want to do is pay for their services in advance. Their fees should be earned and not paid until they have achieved the results that you want.

If you follow this advice and use good judgment, you will be well on your way to getting the maximum value for your business and moving forward with a well-earned retirement.

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