10 Key Considerations to Make When Selling a Business

What to do when selling your business

Selling a business can be stressful but, with careful planning, you can ensure a smooth transition for all parties involved. 

1. Consider your next act first.

Before even beginning the selling process, think about what you will do once your business’s sale is complete. The majority of entrepreneurs put an immense amount of time, effort and thought into their company. Once it’s sold, it might feel like there’s a giant hole in your life where the business once was. 

If you plan on jumping into another venture, consider taking some personal time before doing so to see friends, family and colleagues or take a vacation to your dream destination.

2. Assess personal and business readiness.

Before selling, be sure you’re making the right decision and aren’t acting too rashly. You should never feel rushed to sell. Make sure you, your business and your team members are in the right state before finalizing a deal.

Additionally, address any of your business’s weaknesses before negotiating a sale so you can increase its purchase price. Since it can be difficult to view your business objectively, ask employees or customers how you can improve your business.

3. Evaluate opportunity cost against life goals.

Every decision you make for your business comes with an opportunity cost. Consider what you will be giving up by selling it, including growth opportunities, as well as how selling will impact your career or personal life. 

If you can identify opportunity costs accurately, you might impact the sale negotiations in a positive way. For example, if you feel that a sale would cost you the opportunity to work with a particular patent, add a sale provision into the contract allowing you to use the patent. 

4. Show the true value of the business.

Take inventory of your business and identify its value accurately to ensure the final purchase price is adequate. Don’t forget to add the venture’s long-term potential to the final value. 

To avoid bias, contract a third party to value your business. A third party’s evaluation will add an extra layer of transparency and legitimacy to the asking price. 

5. Evaluate multiple potential buyers.

The more buyers that are interested in your business, the higher the bidding price and sense of urgency to finalize the deal will be. 

When comparing multiple potential bids, consider the bid price, how the buyer will use the business and what the purchase terms are. Don’t be afraid to consult a merger and acquisition advisor at this stage of the process. 

6. Keep empathy and perspective.

Selling a business can be an emotional process. Buyers will view your business through a critical lens and the truth can be hard to swallow. Don’t let the valuation of a business feel like a personal attack if the results aren’t what you expected. Rather, remain unbiased and clear-headed during a business sale. 

7. Remember that people don’t pay for potential.

Include potential growth and long-term success in a business valuation but don’t let that weigh too heavily. Buyers will be purchasing the business in its current state. Don’t tank a potential offer based on how you think the business might perform in the future. [Learn more about how your small business can achieve profitable growth.]

8. Don’t fixate on the purchase price.

The purchase price is not the only factor in a business sale. Consider salary guarantees, stock payouts, installed payments, a future ownership stake and various sale provisions. Ensure you and your team view the final contract in its entirety. 

9. Ensure your values align with those of the new owners.

Your business can feel like a reflection of who you are as a person. For this reason, you’ll want to sell your business to an entity that will carry on the legacy you’ve built. Find a potential buyer who will ensure the business maintains its quality, brand and mission statement. This is especially important if your name will remain attached to the business. 

10. Help employees transition.

Consider how the sale of your business will affect your employees. Will they have new roles under the new ownership? Will they lose their jobs? Will their salaries change? 

Formulate a deal that will be beneficial for your employees. If that isn’t possible, assist and support your employees during the transition as much as you can. 

Things to consider when selling your business 

Several factors can impact both the process and the outcome of selling your business.

The price and value of your business

As you might expect, how much you’ll net from the sale of your business — and how easy or difficult it will be to find a buyer — will vary based on your business’s price and overall value. This may include the present value as well as projected value over time.

Timing of the sale

Timing can also significantly impact the final sale price. Researching the current market and economic conditions thoroughly can help you determine when you want to sell.

Structure of the sale

Choosing the right sale structure can reduce tax liabilities while giving you the most favorable outcome. Two of the most common structures are:

• Asset sale: This involves selling individual assets, such as equipment, contracts and real estate. The seller values these assets, with income tax implications varying based on the type of assets sold. This method allows the seller to retain ownership of the business entity but may result in higher tax rates.
• Stock sale: This method entails selling shares of the business entity and then transferring ownership of all assets and liabilities. It often results in favorable capital gains tax rates and simplifies the process for buyers, who won’t need to retitle assets or renegotiate contracts. The seller’s tax implications will vary depending on their business structure.

Confidentiality of business information

Selling your business requires you to share a certain degree of information with potential buyers. In this process, however, competitors may gain insights into your operations or customer base. Commonly, sellers have potential buyers sign nondisclosure agreements and consult with legal advisors to prepare these agreements.

Reputability and fit of potential buyers

Not all buyers are operating in good faith. In some cases, an apparent buyer may be a competitor using the opportunity to gather confidential information without true genuine intent to purchase. In other cases, a buyer may be genuinely interested in your business but may also lack the capital or commitment required to follow through. In either instance, a thorough vetting process can reduce the likelihood of a disreputable or mismatched buyer.

Customer and supplier relationships

When announcing the sale of your business, your customers might feel disconnected if their concerns and interests aren’t addressed in the process. Additionally, you’ll need to communicate the change to any suppliers to ensure a smooth transition.

Providing buyers with detailed documents on key contracts and internal policies while also maintaining open lines of communication with customers and suppliers can ease this process.

Compliance with employment laws

Selling a business requires ongoing compliance with employment laws. Often, employees are expected to continue working throughout the sale process; should any layoffs occur (for example, in the case of a merger or acquisition), any contracts need to be terminated properly.

Terms of the deal

It’s crucial for a buyer and a seller to thoroughly review the terms of the deal, including any fine print or specific clauses. Both parties must be comfortable with these terms and prepare to meet any requirements to complete the sale as envisioned. Clear communication about future goals and expectations on both sides can help prevent potential conflict.

Due diligence

Once a buyer accepts an offer, the next step is due diligence, which starts with providing the buyer with key documents to support the business’s valuation. This process includes contracts, license agreements, financial projections and policies and should be incorporated into your timeline for selling. To streamline the process and prevent delays, it’s helpful to have your legal advisors review all relevant documents beforehand. 

Your involvement post-sale

Depending on your preferences and circumstances, your involvement in the business post-sale may include working as an employee, serving on the board of directors, acting as a consultant or retaining a financial stake as a shareholder. Each role offers a different balance of time commitment, control and financial benefit, allowing you to tailor your involvement to match your personal and professional goals.

The best time to sell your business 

It makes sense to consider selling a business when the following conditions are present.

Increased buyer demand

The market for business acquisitions and mergers fluctuates based on current events. For example, the COVID-19 pandemic caused business valuations to decrease while demand increased dramatically. This created many cash buyers waiting on the sidelines ready to snatch up businesses. 

Don’t try to time market conditions, however. This is virtually impossible. As a rule of thumb, If you happen to be considering a sale when the market is hot, it might be time to take the first steps. 

Potential for higher taxes

The tax rate is never set in stone — Congress and the president can enact different tax rates to accommodate the state of the economy and country. These tax rate changes typically are proposed well in advance and take time to enact. If you foresee an increase in the tax rate, you might want to finalize the sale of a business before the increase goes into effect as the sale is considered a taxable event and will impact your tax bracket. 

A growing sales market

If the demand for your business’s product increases, consider listing the business. This increased sales potential will be attractive to potential buyers. Remember, don’t try to time the market; focus on having a solid sales record with demonstrated growth. 

When the business needs additional resources

Sometimes a business simply hits a wall. The business might need new leadership or significant investment to continue growing. A business owner might consider selling the business if they are unable to make the investment or lack the required leadership skills. 

If that is the reason for the sale, consider explaining this to the potential buyer during negotiations. You can alter a contract to accommodate the situation, so the sale is beneficial for both parties involved. 

The desire for more personal time

Operating a business is more than a full-time job. If you are beginning to feel burned out and desire an increase in personal time, consider selling the business.

Remember, selling is not a sign of defeat. Time management priorities shift as life goes on. Maybe it is time to step away from the business for the sake of your personal and mental health.

When you need the money

The sale of a business will provide you with an influx of money. Sometimes, this is needed due to a sudden life change such as a health issue, divorce or impending retirement. You can also use the money to jump-start a new business venture. 

Don’t spend the money too soon, however. Take some time to consider your next move after the sale is finalized.

Scott Gerber contributed to this article.