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12 Items to Consider When Selling Your Privately-Owned Business

Mark G. Metzler, CPA, CGMA, CEPA Director, Audit & Accounting

Working closely with privately-owned companies, we understand that selling a business can be a complex process. There is an emotional toll on the business owner which should not be underestimated, as well as many financial considerations.

Below are twelve important factors to consider when selling your business.

  1. Valuation: Determine the value of your business by considering its financial performance, assets, market position, growth potential, and industry trends. It's crucial to have a realistic understanding of your business's worth.
  2. Timing: Choose the right time to sell your business. Factors like market conditions, industry trends, and your personal circumstances should be considered. Selling during a period of growth or when the market is favorable can potentially increase the value of your business.
  3. Preparation: Prepare your business for the sale by organizing your financial records, contracts, and legal documents. Ensure that your books are accurate, tax obligations are up to date, and any potential legal issues or liabilities are addressed. Potential buyers prefer to see audited financial statements, but, at a minimum, would like to see reviewed statements by a reputable accounting firm.  Consider obtaining a pre-sale quality of earnings report so you can anticipate and address any questions or concerns raised by a potential acquirer.
  4. Confidentiality: Maintain confidentiality throughout the selling process to protect your business's reputation and prevent disruption among employees, customers, and suppliers. Non-disclosure agreements (NDAs) can be used to safeguard sensitive information.
  5. Professional Advisors: Seek the assistance of experienced professionals such as business brokers, attorneys, and accountants, who can provide valuable guidance, help with negotiations, and ensure the transaction proceeds smoothly.
  6. Marketing and Finding Buyers: Develop a marketing strategy to attract potential buyers. Consider utilizing online platforms, industry networks, and targeted marketing campaigns to reach qualified buyers. Maintaining a database of interested parties or engaging a business broker can help find suitable buyers.
  7. Due Diligence: Expect potential buyers to conduct due diligence to assess your business thoroughly. Be prepared to provide financial statements, tax returns, customer contracts, employee information, and any other pertinent documents. Respond promptly to requests for information to demonstrate transparency and build trust. Many buyers will be interested in obtaining audited financial statements. It’s also become commonplace for the buyer to request a Quality of Earnings report as part of its due diligence.
  8. Negotiation: Engage in negotiation with potential buyers to reach a mutually beneficial agreement. Be clear about your objectives, including price, terms, and any conditions you consider important. Maintain a balance between securing a good deal and ensuring a smooth transition for your business. Ensure that any letter of intent (LOI) satisfactorily addresses your major concerns prior to signing.  It’s often said that the highest price a seller will be offered is in the LOI.  Buyers will chip away at the price during their due diligence procedures, so iron out any important terms prior to signing the LOI. Leverage shifts to the buyer after an LOI is signed.
  9. Deal Structure: Consider the structure of the deal, whether it is an asset sale, stock sale, or merger. Each structure has different implications for taxes, liabilities, and ongoing involvement in the business.
  10. Transition and Exit Planning: Plan for a smooth transition and exit from your business. Develop a succession plan if necessary and consider any ongoing involvement or support you may provide to the new owner. Ensure a clear understanding of post-sale obligations, compensation, and timelines.
  11. Legal and Tax Implications: Consult with legal and tax professionals to understand the legal and tax implications of the sale. Consider the impact on your personal finances, capital gains taxes, potential liabilities, and any contractual obligations. Don’t forget to consider state income taxes, as they can be significant.
  12. Contingency Planning: Have contingency plans in place in case the sale falls through or encounters unexpected obstacles. Protect yourself by having alternative options or backup buyers identified. It’s not unusual that a potential deal does not make it to closing, so be prepared for this event.

A sale of a business is very attainable but can be emotionally draining for the owner. Seeking professional advice tailored to your specific circumstances is crucial to achieving a successful outcome. If you have any questions or would like to discuss these considerations in further detail, please contact us.

Mark G. Metzler is a Director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.  

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Mark G. Metzler, CPA, CGMA, CEPA

Mark G. Metzler, CPA, CGMA, CEPA

Director, Audit & Accounting

Employee Benefit Plans Specialist, Owner Operated Private Companies Specialist, Private Equity-Backed Companies Specialist

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