Considerations When Selling Your Business

As hard as you have worked to build your business up and make it profitable, there will come a time when you need to sell it. This can be a difficult thing to do when the business has been such an integral part of your life for many years. On the other hand, you may be ready to dump the stress that comes from owning your own business. Whatever your situation, know that people aren't going to flock to buy your business just because you put it up for sale. According to research conducted by business analyst Harvey Zemmel, 75 percent of businesses listed for sale do not sell. That is because business owners either get no offers or they are not satisfied with the offers they do get. The suggestions discussed below may help you to avoid the same fate.

Define Your Priorities

The ultimate goal in putting your business up for sale is to earn a profit and no longer be responsible for the day-to-day operations of the business. How you get to that point is a matter of understanding your own priorities. You need to know from the start the things that you will and will not negotiate with a potential buyer. If you don't have a clear sense of what you are looking for, you could walk away from the sale with a lot of regret. Some of the other things you should consider as you are preparing to put your business up for sale include:

  • Do you have a minimum price that you will accept before you agree to sell your business?
  • Do your adult children or other relatives want to remain a part of the business?
  • Are you willing to settle on a lower price in exchange for certain tax advantages?
  • Is it important to you that the buyer continue the traditions you have established for the business?
  • Is the buyer required to pay in cash upfront or are you willing to finance part of the cost?

After you have honestly answered these questions, prioritize them in order from the most important to the least important. If you are working with a mergers and acquisitions specialist or a business broker, make sure that he or she understands your priorities and is willing to work hard to honor them.

How to Find Interested Buyers for Your Business

While some interested parties may inquire about buying your business, you need to take a proactive approach in locating buyers yourself. Start by talking to your suppliers, reading trade magazines and asking everyone you know to spread the word that you are putting your business up for sale. This approach should give you several leads to include on a list of people to contact. You should also pay attention to companies in your area that have recently undertaken acquisitions. This could mean the business owner is in a mergers and acquisitions phase and is willing to consider buying your business as well.

When a business owner announces a public offering, it means that he or she may be looking to expand before officially going public with the business. By doing so, the business owner can drive up the price of company stock and offer better value to investors. As soon as you see a notice of a public offering, be prepared to approach that business owner with a good deal. You need to act quickly before another investor approaches or the business goes public.

Your direct competition is another potential source for buyers. This could be an ideal situation because these businesses are after the same customers that you already have.

Your Obligation to Your Partners and Shareholders

If you have partners or shareholders, you must consider how the sale of the business affects them from a legal and personal point of view. You need to be completely transparent with them throughout the selling process and be certain to document everything. This serves as your legal protection if one of them decides to sue you later. Since laws vary from one state to the next, you need to consult a lawyer to determine your financial obligation to your partners and shareholders in the sale of your business.

Understand Your Disclosure Obligations

You have a legal duty to disclose complete and truthful information about your business. This means that you are required to discuss any actual or potential problems about the business before finalizing the sale with a buyer. For example, if you are selling a restaurant that has known mold issues, you need to inform the buyer that he or she will need to invest in mold remediation before opening the restaurant to the public. Even if the mold issue isn't currently a problem, you need to disclose it if it has been in the past and has the potential to be again in the future.

You risk being sued for fraud if you make a material misrepresentation of facts regarding your business. This means that you withheld information that may have caused a buyer to cancel the deal or offer a lower selling price. It is important to understand that you don't have to outright lie in order to be accused of material misrepresentation. A buyer may later sue you for not mentioning something that had a major impact on his or her business. This can happen even when it is something you didn't know about if the buyer can prove that you were negligent in not researching this information ahead of time.

Make Sure That You Both Have Legal Representation

With thousands or millions of dollars exchanging hands during the sale of your business, it only makes sense that both you and the buyer are represented by a lawyer. This ensures that the transaction abides by all state and federal laws and protects both you and the buyer if disputes arise at a later date.

Source: New feed