Some people start businesses with the intention of running them for years and then handing them down to their children or grandchildren. For others, a business is an asset that they eventually intend to sell to others. Parties ranging from entrepreneurs to multinational conglomerates may have an interest in acquiring a business that has proven successful. The funds generated in a business sale transaction can give an owner the resources they need to retire, provide a legacy for others or move on to their next business endeavor.
A business sale can be lucrative, but it is also a process fraught with potential pitfalls. Taking the three steps below before attempting to sell a business can help an owner avoid setbacks and optimize the return on their investment.
Thoroughly review finances and contracts
Selling a business requires having an understanding of its current circumstances. A business owner needs to understand what liabilities and obligations the organization has. Reviewing everything from leases and employment contracts to outstanding debts can help them get the business into the best shape possible for an upcoming sale.
Establish a reasonable business valuation
To optimize the return on a business sale transaction, the seller needs to request a specific price grounded in reality. The business valuation process looks at a variety of different factors to determine what the company is worth. Factors ranging from the depreciated value of equipment to the company’s intellectual property can play an important role in the business valuation process. Having a set asking price makes it easier to vet potential buyers.
Prepare for the company’s transition
Before listing the company, the current owner may need to take steps to make the transition as smooth as possible. They may need to notify vendors and clients of the company’s upcoming sale so that they do not cease doing business with the organization. They may also need to communicate about the sale with employees to avoid the flight of talent that often accompanies a large business transaction. In some cases, current leaders and executives can help protect the company from financial setbacks and operational disruptions by agreeing to provide transition support after the sale in the form of hands-on training for new leadership.
The right approach to a business sale transaction can speed up the process and optimize the returns acquired by the owner. Seeking to minimize organizational liabilities and prevent disruptions to operations can be beneficial for the party selling the company and the new owners of the organization as well.