As the world continues to recover from the economic effects of coronavirus (COVID-19), some financial analysts are projecting that close to 50% of businesses will fade away before the current economic environment calms down. Unfortunately, closing your business can often be a difficult choice to make because you have spent so much time growing and nurturing it to get it to where you are today; however, if you think now is the time for your to sell your business, the team at Maennche Virtual CMO is here to help navigate the process during this difficult time.
Each week, we are approached by several entrepreneurs that are looking to either sell their business or determine if there are any businesses for sale that they may be able to purchase. What they may not understand is that there are many ways to sell a business and most businesses have some parts that contain value. Our goal is to help them identify those parts that have value and help the exit their business gracefully. You do not have to just shut down and stop operating when your business closes and many other approaches may be beneficial depending on your unique circumstances.
While every business is unique and has its own journey, there may come a time that you are ready to sell to move on to something new or enjoy your previous successes. As a VCMO, Matthew Maennche can connect you with the resources and local guidance needed to plan your exit strategy and evaluate the assets you have available that may be attractive to potential buyers. This may include not only tangible assets but also other intangible ones like intellectual property, customer information, brand presence and future revenue projections.
Despite the economic impact that COVID-19 has had, the sale of private businesses is still moving forward, even though it may have slowed slightly. Businesses that can update their financial forecast and ensure they are providing a strong case as to why their business would be a valuable asset for a buyer can still find success in the current marketplace, particularly if they are willing to be flexible on the deal terms that are presented. As an advocate for businesses of all sizes, Matthew Maennche and the team at Maennche Virtual CMO are here to help remove some of the common stressors that accompany the process and connect buyers and sellers to expedite the process.
Considerations When Selling Your Business
A business sale will often require a substantial amount of time to prepare. Although, keeping some considerations in mind can help position you for success and ensure you are attracting the right buyer that is looking for the assets that you are selling. Careful planning can help ensure you are receiving a fair price for the sale of your business and the transition will be as seamless as possible. At Maennche Virtual CMO we can help connect sellers with potential buyers that are looking for businesses just like yours if you decide that you are ready to move on from your current business.
Before giving up and just walking away from your business, it is important to at least see what is possible if you were to sell the business in its entirety or recoup some of the losses by piecing out equipment or sell data that could be used by similar businesses to expand or build their own business. These distinctions can help determine which route is appropriate for your unique needs and are able to outline the steps you will need to take to get started. Reviewing the following considerations can help ensure you have a solid plan in place that can help turn your negotiations into a success.
Reasons for the Sale
Without fail, one of the first things that most prospective buyers will ask is why you are wanting to sell your business. While some common reasons for selling your business may include retirement or wanting to move on to something new, other business owners hope to sell because they are not profitable. As you might imagine, the latter scenario can make it harder to find a potential buyer; however, that doesn’t mean you can’t still sell tangible aspects of your business to recoup some losses instead of just closing your doors and taking a hit.
Timing of the Sale
In an ideal world, business owners will typically prepare for a sale up to two years in advance. Unfortunately, the COVID-19 pandemic has not given this luxury to many business owners. The key things to keep in mind are that you should be able to improve your financial records, document your customer base and detail the business structure before a prospective buyer will enter negotiations. These improvements also help ensure that, if they continue the business as is, they have the resources needed to get started quickly and make the transition as smooth as possible.
Value of the Sale
Having a clear business valuation can help ensure that when you sell you and the potential buyer are both receiving a fair deal. Working with a business appraiser can provide a detailed view of the business’s worth and help ensure you don’t attempt to sell for too high and scare of buyers or sell too low and miss out on potential revenue that you may have left on the table. With the appraiser’s detailed explanation, you can use this document to add credibility to the price you ask for the business and its assets or determine the starting listing price.
How to Sell Your Business
With the above considerations in mind completed, there is a good chance that you are ready to start preparing to sell your business. Before getting started, it is important to ensure that you have financial documents and tax returns for the past 3 to 4 years available and ready to review with an accountant. Additionally, you will likely need to create a detailed list of the equipment that will be sold with the business or sold separately depending on how you approach the situation.
During this period, you will also need to create a list of any contacts that may be required for sales transactions or suppliers that the business uses. These pieces of paperwork and information on the current lease should be distributed to potential buyers that are qualified financially and will provide a detailed summary of how the business is conducted as well as any standard operating procedures that may be required to make the business presentable.
Find a Buyer
Based on SCORE data, selling a business can generally take between six months and two years. One of the main reasons for this is that finding the perfect buyer to absorb or take over your business can be not only challenging but also time-consuming. Once you have prospective buyers lined up, there are a few key steps you should take to keep the process moving and close the sale as quickly as possible. Some of the things to consider include:
Keep a pool of potential buyers lined up in case the primary deal falls through.
Do not lose contact with potential buyers to keep them interested.
Determine which potential buyers already have funding secured or if they qualify for financing before giving them information about your business.
Any financed sales should be worked out with a lawyer or accountant.
Stand firm on your valuated price but remain flexible to some negotiation within the bounds of the companies appraised valuation
Make potential buyers sign an NDA or confidentiality agreement to protect your information if a sale falls through and make sure all agreements are in writing.
Attempt to get the purchase agreement signed into escrow.
Depending on your goals and direction after the sale is completed, the buyer may also have the seller sign a non-compete agreement in which they agree to not start a new, competing business that would potentially steal customers that were included in the original agreement. After the sale of your business is completed, a bill of sale will transfer the assets of the business to the buyer while a security agreement has the seller retain any liens on the business.
Manage the Profits
It is important to remember that once you sell your business, there are some key things you should keep in mind about the profits. First, your newfound wealth may bump you into a new tax bracket and may carry consequences that were previously unaccounted for. To understand these impacts, you may consider working with an accountant to outline your financial goals and learn about any potential problems that the money may cause that need to be addressed. Doing this in advance and estimating your profits based on the valuation can also help set the tone for what to expect after you sell your business.
Although you may have plans for some of the money you received from selling your business, it is important to not rush to spend it. For most business owners that move on from a venture, experts generally recommend taking a few months before pulling from the profits that you obtained. During this period, consider if you want to invest the money to potentially accrue more wealth or settle for long-term benefits like saving for retirement or paying down existing debt that may be present. The opportunities are endless but having a game plan is critical to ensure the profits are being spent wisely.
How Can Maennche Virtual CMO Help?
If you are ready to take the next steps as a buyer or seller, you are encouraged to reach out to us to learn what is possible and potential businesses that may be available that meet your unique needs as an entrepreneur. Do not face this process alone when you do not have to! With over two decades of in-the-trenches marketing experience and volunteer work as a leader of the Tulsa chapter of SCORE, Matthew Maennche’s views on developing and supporting a successful business are fundamentally different from the norm. To meet with Matthew schedule a free initial consultation.