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How do you know when if you’re ready to sell your business? Skidmore weighs in.

We understand that the idea of selling your business could bring upon different types of emotional anxiety. As a business owner, you’ve succeeded in making the right decisions that has lead you to this point, or the very least, learned from ones that weren’t. Making one of the biggest decisions in your career requires much deliberation with many factors (and people) to consider. Here at Skidmore, we understand that the process of selling your business is long and complex. So let’s walk through the following factors when considering mental preparation, financial considerations, and developing a strategic plan.

Question why you’re ready to exit

Ready for retirement? Capitalizing on new technology? Serial entrepreneur?

What is your core contribution to your business and can it not only run well, but run better without your leadership? Whatever your motivation in selling your business may be, it is critical that you’re confident and comfortable that the right decision is made.

Before selling your company, figure out what kind of legacy you wish to leave. Thinking of the longer term goals is essential but make sure to take the appropriate steps to ensure the success and continuity of your business, like if your employees will remain committed after your exit.

Depending on your post-sale priorities, starting the process of an external sale should begin with a financial acquirer or private equity firm to provide you with growth capital expertise and keep a stake in the business without operational obligations.

Ready for retirement? Capitalizing on new technology? Serial entrepreneur? What is your core contribution to your business and can it not only run well, but run better without your leadership?

Financial considerations

After the initial meeting with a finance professional, look at your numbers and consider how much wealth you require to fund your lifestyle post-sales. Essentially, do you have enough money in the bank to provide for your future needs and plans. If so, let’s determine the next steps.

If you are considering a trade sale or a sale to a private equity investor, there will often be an earn-out period where the seller is tied in for a few years to ensure a continuity and a smooth transition. If you are looking for a pause and time off, an outright sale will be your best option.

You may also consider consulting a wealth management expert or a financial institution to help you grow your personal wealth and structure the sale to meet your long-term financial goals. Financial institutions have developed modelling tools that can take into account after-tax returns from a number of investment sources as well as your income requirements to see whether or not your objectives can be achieved. This is a great option to help you make a decision between various types of sales.  

Develop your strategic plan

Now, to the more granular part of the process. Updating your strategic business plan with measurable goals and milestones with key fundamental factors will clarify your plan to possible buyers and demonstrates long-term potential. Without a strategic business plan, your end goal of selling at an optimal price can get lost and the future growth of your business can go down south.

Here are some key things to consider:

  • Profitability and Ongoing Investment

  • Increased Operational Efficiency

  • Develop Repeatable Processes and Empower Your Employees

  • Leverage Social Media

  • Tax Liability

Profitability and Ongoing Investment

Valuation of your business is tied to growth prospects and profitability. Good retained earnings are attractive to buyers as they equate to long-term profitability. The importance of investing in capital assets, equipment and I.T. is essential to evolving the future of your company. Conversely, outdated technology and processes are unattractive and can be seen as obsolete. Generally speaking, it’s critical that you demonstrate positive business performance and profitability in recent years and that your efforts are both visible and evolved.

Increased Operational Efficiency

So a big question, are you running a lean business model? Have you analyzed your business’ processes to look for ways to increase your operational efficiency? While investing in the importance of equipment, has that in turn boosted sales and lowered overall expenses?

If you haven’t evaluated your business in this way, discussing this with an operational efficiency consultant could be the first step. They can help you focus on reducing waste or strategically controlling inventory without affecting operations, or by creating a diversified customer base that generates business loyalty.

Develop Repeatable Processes and Empower Your Employees

To ensure that your business continues to thrive, it’s recommended that you instill proper processes and systems for your employees so they can apply that same practice without your guidance. Creating manageable processes so your employees can train others not only empowers them, but motivates them to continue their high performance. Demonstrating stability in your team conveys loyalty and low turnover for potential buyers.  

Leverage Social Media

If your business is active on social media and you have strong brand presence, leveraging those tools to potential buyers would help differentiate yourself. If your digital presence isn’t up to par, defining a digital unique value proposition and telling your story may be a great start. Asking long-time clients for testimonials could strengthen your brand and by making sure you’re consistent with your story could help lessen the marketing challenge when thinking about selling your business.

Tax Liability

Ok so you’ve decided to sell, now what? Consult a tax expert to formulate an appropropriate structure for your sale. There will always be hiccups along the way so understand that it sometimes takes time to implement a profitable structure. Some issues that may affect your tax liability include:

  • Deferring tax liability

  • The best use of your lifetime capital gains tax exemption

  • Criteria your business must meet to be considered a small business corporation (which qualifies your business for the capital gains exemption)

  • Estate freeze

  • Sales tax

  • Land transfer tax

Seek expertise

We always recommend seeking professional guidance to not only answer all of your questions, but also to help you feel confident throughout the process. It’s completely new and can sometimes be daunting and stressful. Consultants can help you prepare your business for the sale and for example, get the best sale price for your business. They can advise on operational efficiency, strategic planning, marketing, sales, etc.

When you’re ready to sell your business, secure financial and leadership from Skidmore. Skidmore has an established record of growing shareholder value. We expand regional brands into national players by applying capital and expertise to achieve market dominance. Contact us today.