How to Sell My Business, Thoughts for Owners

The problem with selling a business is that it's a life changing event, and the first time is the last time time for 99% of all business owners. How should an owner think about selling a business?

1. Begin with Self-Reflection and Clear Goals

Selling a business is not merely a financial transaction; it’s often an emotional one. Start by asking yourself why you want to sell. Common reasons include retirement, shifting priorities, or capitalizing on favorable market conditions. Understanding your motivation can help you think about the type of buyer you want to sell to.

Next, clarify your goals. Are you aiming for a quick sale, the highest price, or ensuring the company’s legacy endures? Knowing what matters to you will make the process easier.

2. How Much is My Business Worth?

Most owners have a number for their price. It's the number to retire, to live in a certain way, or it's just what you know the business is worth.

The way buyers think about a price is different. Namely, they think in terms of EBITDA/profit multiples. To them, your business is approximately worth last year's profits multiplied by some number (4,6,7) etc. Whether that multiplier is high or low depends on long-term profit potential, stability, and growth prospects.

When the owner number and the buyer number overlap, you've got a deal.

Hire a professional valuation expert or consult an advisor to help with this. A comprehensive valuation can not only prevent undervaluing your business but can also give you a solid foundation for negotiations. Remember, this is about telling a compelling story to potential buyers: one that encompasses financial performance, market position, and growth opportunities​​.

3. Focus on Due Diligence and Documentation

Due diligence is the buyer’s process of thoroughly assessing your business, and it’s typically intensive. Buyers will scrutinize your financial records, contracts, customer base, legal standing, intellectual property, and operational processes. Preparing these materials in advance is crucial to keeping the process smooth and building buyer confidence​.

Consider engaging a due diligence advisor, particularly if you’re selling for the first time. Advisors can help you prepare detailed and organized records and guide you through the process so there are no last-minute surprises that could derail a potential sale. Having clean, detailed, and transparent records can significantly enhance trust and lead to better offers​​.

4. Evaluate Potential Buyers and Understand Their Goals

Just as a buyer assesses the value of your business, it’s crucial to understand what each potential buyer brings to the table. Common buyer types include strategic buyers, private equity firms, and individual investors. Strategic buyers may see your business as complementary to theirs, often looking to fold it into a larger entity, whereas individual investors might be first-time CEOs with a vested interest in maintaining your legacy​​.

5. Plan for a Transition Period

If you’re a key player in the business, be prepared for a transition period where you’ll help the buyer take over. Buyers often prefer that founders or CEOs stay involved for a while post-sale to ensure continuity, particularly with employee relations and customer connections. A well-defined transition period can increase the attractiveness of your business and ease the concerns of both your buyer and your employees.

Additionally, be clear about your role during this time. Decide whether you’ll stay on as an advisor, consultant, or simply make yourself available for periodic check-ins. Structuring a fair compensation arrangement for this transition period can also be beneficial​​.

6. Build a Team of Advisors

Selling a business is complex, and the right advisors can make the process smoother. A strong team might include a business broker, legal advisor, tax advisor, and, if the business is large enough, an investment banker. Business brokers can help find potential buyers, legal advisors ensure compliance, and tax experts can help you plan for the sale’s financial implications​​.

Remember, selling a business is likely the most significant financial transaction of your life, and expert guidance can pay off immensely. Additionally, an advisor team can help you balance emotions with clear-headed strategies, ultimately maximizing the sale’s outcome​.

7. Think About the Sale’s Timing

Timing is critical when selling a business. If you’ve had a few years of strong financial performance and growth, now may be a favorable time to sell. Conversely, if the market is in flux or the industry is facing uncertainties, it might be wise to wait. Business cycles and macroeconomic conditions will affect not only the valuation but also the ease and speed of the sale process​.

In addition to financial timing, consider the personal timing. Do you feel ready to step away? If your readiness aligns with a favorable market environment, you might be in an ideal position for a successful sale.

8. Consider Future Involvement or Equity Roll-Over

Some buyers may ask you to roll over a portion of your equity or retain a stake in the business post-sale. This can be an attractive proposition if you believe the business has further growth potential under new ownership. It also provides additional financial upside if the business continues to thrive​​.

However, assess your risk tolerance and commitment level. Staying invested may require ongoing involvement and exposure to future business risks. A clear understanding of these aspects and a well-drafted agreement can help avoid misunderstandings down the line​.

Final Thoughts

Selling a business is a significant milestone that requires careful planning, realistic expectations, and an understanding of both the process and your goals. Each decision—from setting the price and selecting a buyer to defining your post-sale role—will impact your outcome. With the right preparation, team, and mindset, you can navigate the sale process effectively, ensuring a rewarding next chapter for both you and the business you've built.