7 Things to Consider When Selling a Business

Selling a business, whether it’s your first time or not, can be a daunting prospect. There is so much to prepare for, with little guarantee of the outcome. Where do you even start? Let’s begin with the basics — the most essential things to consider when selling a business.

1. Market Conditions

Ultimately, how fast your business sells and for what price depends highly on the market, since the market is from whence will emerge a ready, willing, and able buyer. 

Usually, businesses sell most quickly and for the highest price during times of economic boom, either early in a recovery or on the upslope, when businesses are flush with cash and interested in scaling quickly through new acquisitions. During periods of economic decline and recession, buyers may tighten their belts and there will be fewer prospects to compete for the acquisition of your company. Market conditions may also dictate how many people are in the market for a business like yours — in your industry, sector, or niche. 

Don’t forget about monetary policy, either. When central banks restrict the flow of money to cool down the economy, buyers may have less cash on hand or access to credit for acquisitions. High interest rates may also affect the price buyers are willing to pay for your business.

2. Setting the Right Price

Perhaps the most crucial thing to consider in your sale is setting a price that buyers will find fair and attractive, without selling yourself short.

Price your business too low and you might find a buyer quickly, but you will have shortchanged yourself for all the effort and resources you expended building the business in the first place. For example, if you want to sell your business in Houston, you should price it competitively with other booming businesses in the area. 

Worse than lowballing yourself, however, is pricing your business too high. If the price scares off buyers, your business may sit on the market for a long time. If your business fails to go under contract quickly, potential buyers may assume that there is something wrong with it. When you attempt to correct the price, you may have to overcorrect for this cooling factor in the market — in other words, settle for a lower price than you would have if you had gotten the price right in the first place. 

Strongly consider obtaining professional advice when valuing your business.

3. Confidentiality

You may not want the details of your business — or even the fact that you are selling — to be public. If so, it may be wise to consider hiring a broker to stand between you and potential buyers, and to make your listing anonymous (industry and relevant details, but no identifying information for the business itself). 

The pros at IBEX Middle Market Business Brokers will have potential buyers sign NDAs and vet them for trustworthiness before they get to see any confidential information.

4. Assembling the Right Team

Smart business owners rarely attempt to sell their own business single-handedly, if for no other reason than the fact that buyers will expect the business to be kept in good operational order until closing – meaning your hands will be full with normal operations all the way up to closing.

As such, make moves to start assembling your team. This might include:

• Business broker or adviser
• Valuation advisor
• Transaction attorney
• Account and/or tax advisor
  
  

5. Making Your Business an Attractive Commodity

Of course, your business will only command a high price on the open market if it looks like a good buy. While it may seem like this opinion is out of your hands, there is much you can do to influence it. To make your business an attractive commodity on the market before you bring it to sale, consider the following:

• Maximize Profit. If possible, cut costs, identify new revenue streams, and make a push to get sales up as high as possible. The more you can make the case for the future revenue potential of the business, the higher the price you can command and the more qualified a buyer you will attract.
• Streamline Operations. This goes hand-in-hand with cutting costs — look for opportunities to automate, outsource, and reduce duplication of effort so your business looks like (and is) a lean, mean efficiency machine. 
• Don’t Forget Curb Appeal. If your business has a brick-and-mortar or physical facility, give it an upgrade, update, or facelift. Even online businesses can have the appearance and user experience of their digital experiences upgraded. 
• Get Your Documentation in Order. Don’t just collect your financial records, tax records, contracts, and records of regulator compliance together — consider the presentation. Package them in a way that is attractive and easy to read. Confused customers never buy. Conversely, there is value in clarity.
  
  

6. Time Horizon of the Sale

How soon do you want to close? Sales of businesses rarely close in less than six months, whereas normal sales can stretch to one year or longer. If you need to sell quickly, you will most likely have to accept a lower price or offer favorable terms like seller financing. 

7. Tax Implications

The sale of a business for a profit is almost always a taxable event, and those taxes will necessarily eat into the proceeds. Taxes business owners usually face upon cashing out include Federal capital gains taxes, possible state income taxes or franchise taxes, sales tax on any personal property or equipment conveyed with the sale, transfer taxes on any real estate, and possibly other taxes. For example, if you sell a business in Dallas, you wouldn’t have to pay state income taxes, but you may still pay a taxable income rate. 

In general, taxation can claim anywhere from 15-30% of the sale profits, but every situation is different. Sellers would be well advised to consult a tax professional to try and estimate their potential tax liability for the sale and, if possible, strategize to reduce it as much as possible.

Clearly, there are many things to consider when selling a business. Fortunately, you don’t have to go it alone. A professional business broker (like the ones at IBEX) can help you keep track of all the moving parts, as well as apply strategies to maximize advantages and avoid common pitfalls. With the right assistance, any entrepreneur can ride off into the sunset with the windfall profits of a successful sale.