How to Sell Your Business And Plan An Exit Strategy

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Selling a business is a stressful project that needs as much planning as it takes to get your business off the ground. 

Several decisions need to be made, including the selling price, whether to sell your business to employees for stock or to a third party, and whether you want to liquidate assets, such as real estate, equipment, or inventory. 

But the process doesn't have to be overly complicated. Here are some tips to prepare to sell your business.

Reasons to sell your business

Starting and operating a business is an exciting experience that only a few will ever experience. However, there comes a time when you deem it time to move on to new pastures and make a fresh start.

How to Sell Your Business And Plan An Exit Strategy

There are plenty of reasons business owners decide to sell their companies, ranging from retirement to needing capital to start a new business. However, the question arises, what do you do with your existing company? 

The answer to this question can vary depending on your circumstance, but the majority will decide to begin the process of selling their business. Selling a business can, however, be more challenging than it may seem at first glance.

According to the professionals at Strategic Growth for Enterprise, some potential pitfalls can arise from correctly valuing your company, finding buyers, and negotiating a fair price for all involved. 

Nevertheless, if you have the right attitude and steps to follow, you can properly value your business and find a buyer in no time.

Exit planning mistakes entrepreneurs make 

Before going into detail about how to sell a business, it is wise to look at some of the main mistakes entrepreneurs make when planning an exit strategy. Entrepreneurs tend to think about exit strategies too late in the game.

Exit planning mistakes entrepreneurs make

After years of frustration and resentment, they only consider selling their business once they are tired and burnt out

Ultimately, this will result in poor planning, incorrect valuations, and few interested buyers. However, there are other mistakes to avoid when you are planning your exit:

  • Inadequate preparation: If you fail to prepare, you should prepare to fail, as the saying goes! If you don't adequately prepare, you might struggle to get the price your business deserves.
  • Trying to do it on your own: It might be possible to go it alone if your business is small and you are selling to a friend or family member. Nonetheless, to sell a more extensive business to an outside buyer, professional help ranging from attorneys to intermediaries will be required.
  • Separating yourself from the process: in many ways, your business is you, and you are your business. Potential buyers might not fully understand the company's value if you are not involved in the sale process.
  • Fraudulent reporting: It should go without saying that fraudulent reporting of accounts is not only bad practice but illegal. You will get found out sooner or later, and the consequences will be severe when you do.
  • Unwilling to negotiate: Negation is a critical compartment in a sale, and if you're reluctant to negotiate within reason, you might be sitting on your business for a long time.
  • Valuing your business above market value: Although your business is your baby and you believe it is worth a specific amount, overvaluing it is a recipe for disaster. Moreover, crazy valuations might even affect your reputation and scare investors away.

How to sell your business for the price

Selling your business is a big decision that should not be taken lightly. It is essential to understand what you are selling and why.

If you are selling because of a personal issue, you should clearly understand what the sale will entail and who will take over your role. 

So let's take a look at the steps involved.

Understand why you are selling

As previously mentioned, there are plenty of reasons that you may have for deciding to sell your company. However, the first step is to take a step back and truly consider your motives.

Understand why you are selling

While some reasons, like retirement, will be clear-cut, others will be more complicated.

  • Retirement: If you are nearing the end of your working life, you might want to settle down and enjoy the rest of your life. However, you should consider how much you will need to live comfortably and what that amount will look like after tax. If you don't carefully plan your retirement, you will be surprised at how quickly a lump sum of money can disappear.
  • You need capital for a new venture: Congratulations, you have moved into the world of the serial entrepreneur! Nonetheless, you must consider whether selling is the right choice and whether you will raise enough money to cover your new project. In some cases, you might find that keeping your existing business is the better option to help you fund your new one.
  • Relocation: If you run a local business and need to relocate, your only option will probably be to sell. If so, you should consider the cost of setting up a business in the new location so that you can determine the value you require.
  • The business is underperforming: If you are struggling to make ends meet, a sale might be on the cards. However, you should be aware that you will not get a high valuation; in some instances, you could find it challenging to find a buyer.
  • Poor health: If you are in poor health, it could be a good idea to see if you have a family member to take over and run it in your absence. This will keep it in your family and hopefully allow you to pay your medical bills from the proceeds.
  • The business is in high demand: Your company might simply be in high demand in some cases. When this is the case, and you do not wish to run it any longer, it could be the right time to cash in and get out while the going is good!

There are many more reasons, but these give you a sample to ponder over. The critical point is that you really take time and heed what you are doing.

Once you have sold your business, that is it, and you will need to figure out how to reinvest the profits wisely

So, now that you've figured out why you want to sell, what are the next steps?

Review your financials with a trained accountant

Before you sell your business, you should have a trained accountant review your finances.

Accountants can help you sell your business by providing the necessary information to make an informed decision about selling or continuing to operate your business. 

The accountant will look for mistakes and discrepancies that could be costly to the buyer of your business.

Value your business

As far as the selling process is concerned, this step is arguably one of the most important since it determines whether you can sell or not.

Value your business

Moreover, it will give you an idea if it is even pursuing a sale or if you would be better off keeping it. For E-commerce, here are informations about how to determine e-commerce business valuations.

You can use several methods to come up with a reasonable value, including:

  1. Calculate the value of the assets: Add up the value of all the company's assets, including its equipment and inventory, and subtract the liabilities. This will give you a good starting point based on pure assets.

  2. Calculate it based on revenue: Calculate how much revenue your business generates per annum and what prices similar companies sell for.

  3. Calculate earnings multiples: If your business is large enough and draws in significant revenue, you might find that a price-to-earnings ratio is the best way to go. 

  4. Use a discounted cash-flow analysis: Using this formula, you can project future cash flows for a business. Future cash flows are then discounted to reflect today's value.

Find a buyer

When you are trying to sell your business, there are two main types of people that you should be targeting:

  1. Buyers

  2. Investors

Buyers are the type of people who buy businesses for their own use or for resale purposes, while investors purchase companies in order to grow them into larger enterprises. There are three main ways to find a buyer for your business:

  1. Selling it yourself (a good option if you have the time and resources)

  2. Hire an agency or broker to help you sell it (this option will usually cost more than selling it yourself but can be worth the investment in some cases)

  3. Find an investor who wants to buy into your business (this option will cost more than either of the other options but can provide you with access to capital).

Hire a law firm specializing in business sales

Business purchases and sales attorneys are the experts who help with the legal aspects of business transactions. They are also known as transactional lawyers or corporate counsel. 

A purchase or sale attorney can be an individual lawyer or a group of lawyers that work together to provide services in one area of law. Once you have found a quality firm, you can hire them to help you with most aspects of the sale.

Final words: How to sell your business and plan an exit strategy

It's essential to have an exit strategy in place before selling your business. Working with a business broker, you'll have access to more comprehensive information than you'd receive from selling to an individual buyer.

If you are looking a business broker, Jason Brice might be a good partner for you.

Nevertheless, you can use the points laid out in this post to help you get the right price and move on to greener pastures.

About the author 

Peter Keszegh

Most people write this part in the third person but I won't. You're at the right place if you want to start or grow your online business. When I'm not busy scaling up my own or other people' businesses, you'll find me trying out new things and discovering new places. Connect with me on Facebook, just let me know how I can help.

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