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When selling your business, expect these

Updated: Dec 12, 2023

We put together a list of things to be aware of when selling your business

Gift as soon as possible

If your plan is to gift interests in the business to the next generation, pull the trigger on that now, before the business value grows in the future along with your gift tax bill.

You may be lending money

Most small private businesses that sell do so for their cash flows, with fewer carrying much in the way of the hard assets that banks like to have for collateral. So there's a chance a buyer will not be able to finance all of the purchase price, and will look to you to be patient on some portion of the price, usually 10-15% of offered amount.

Timing will be key

Too often circumstances force a sale, including diminished motivation and drive from ownership, or worse. If you fail to prepare and sell before you lose passion for the business, the value is likely slipping fast.

Better off paying more in taxes

If you remove all personal benefits and perks from business expenses in an effort to boost reported income, you won't have to fight to get those added back with a buyer. A clear understanding of earnings performance by the buyer increases their confidence in the quality of the earnings, versus earnings built with multiple add-backs. Yes, that does increase taxes in the years prior to a sale, but having add-backs negotiated away by the buyer would cost you more.

They won't pay for potential

We often feel passionate about the potential our business has, and while it may also be the inspiration for an offer from a buyer, the amount of the offer won't include potential. It will be rooted in what revenue and cash flow have done in recent years, not what they could do.

Buyers love recurring revenue

The less a buyer has to worry about finding new clients for the business, the more comfortable they will be about making the leap to binding offer. If you have established many long term relationships with customers, who come back year after year, you are in good shape.

You are less prepared than you think, even if you have prepared

It is easy to overlook what is second nature to you and your team but would not be to an outsider. All procedures, policies, customer retention and customer growth methods need to be documented. Dozens of documents need to be assembled and digitized for sharing with potential buyers. Legal and financial moves need to be made prior. It takes a few years on average to prepare fully and properly.

The sales process will be an emotional roller coaster

Most buyers will be working hard to get your price down. Some buyers will look promising before abruptly dis-engaging. There will likely be a few ups and downs emotionally. Disagreements between buyer and seller on what its worth or terms. It's best to have professional representation to help keep each side from acting too irrationally.

Thanks for reading.

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