Questions Business Owners Should Ask Before They Sell Their Company

You’ve worked hard to build a company that is profitable and meets a need for your customers. However, like everything in life, there is a time to start, a time to build, and a time to end. You likely spent quite a bit of time and energy planning when you began and built your company, so why not plan when it’s time to sell?

Part of the planning process when you’re selling begins by asking yourself a few questions.

• What is my company worth? This can be a difficult question to answer because we are emotionally involved in the company. Even though we know our business is valued at X, do we have the data to support that position? A buyer won’t have your emotional investment in the company. All they will see if the balance sheet, the P&L, and the current state of your business in the marketplace. They will evaluate the value of the book of business you currently hold and maybe what you could potentially hold in the future. Be realistic and honest with yourself as you work to determine the value of your company. Likely the value you have placed upon the company is valid, so build a case to support that value.
• What obligations might the new owner expect of me? What duties will go to the new owner? Are you planning or hoping to remain involved in the company during the transition period? Or are you looking to get out entirely and move on in your life? Some owners want to hand off the entire business as quickly as possible. Others desire to see their “baby” transition to new management. Some owners will request you to stick around for a little bit of time and act as a mentor and consultant. It’s all negotiable.
• Does everyone understand my earn-out and has it been clearly stated and acknowledged by all parties? An earn-out is an agreement between you and the buyer where you receive additional compensation in the future provided the company achieves specific financial goals. What those goals are is up to you and the buyer. It could be the purchase price plus 5% of gross for the next few years. Or it might be $10 million at the close with an additional $5 million after metrics are met. The key to an earn-out is clearly defining what parameters will be used to trigger the earn-out and how those metrics are defined and measured. Metrics can be almost anything, but most commonly, they involve revenue, EBITDA, retention of key employees, etc. The key to getting your money is to negotiate and clearly define the earn-out.
• Has the sale been structured to minimize risk and taxes? Honestly, this answer is best answered by your CPA. They should be involved in the process early so you can make the correct decisions early in the negotiations. There are options available to help you defer and reduce your taxes on the sale of your business. Seller financing is one way. Selling stock rather than the assets is another. Your accountant and attorney likely have other options. Since I’m not a CPA, I’m not going to discuss much more other than advising you to your CPA involved early.

These are just a few questions to help you begin the process of selling your business. For further assistance, contact me today and let’s ensure you’re paid what you deserve. You’ve worked too hard to leave money on the table.