Austin's Business Sale Blueprint: 7 Key Considerations for Seller Success

Selling a business requires a lot of careful planning and preparation. It’s crucial to leave no stone unturned for both the buyer and seller to get the most out of the sale.

Read on for seven important factors to take into consideration when handing over the keys to your business.

1. Goals and Reasons for Selling

There could be multiple reasons why you’d want to put your business up for sale. Whether these are personal, financial, or strategic reasons, the first step is to map out your goals and what you want to achieve from this sale. Clear goals and objectives help set realistic expectations and keep you motivated throughout the whole process.

The reasons you want or need to sell a business could be:

• Funding retirement

• Pursuing opportunities outside of the business

• Scaling the company upwards under new management

• Break into new markets

2. Exit Strategy

Selling a company doesn’t mean that the business is done (except in some cases). If anything, it should continue to operate normally, if not better than before. This is what an exit strategy is for: An exit strategy ensures a business is covered on all fronts — even after the sale.

Depending on your goals for the sale, you might be looking at strategies like:

• Merger and Acquisition (M&A): Merging with another company to form a new singular body or being acquired as part of a larger company

• Legacy/Family Succession: Passing down ownership of the company to family members

• Acqui-hiring: Buying a business to acquire all its employees

• Management or Employee Buyout: Selling to the company’s own managers or employees

• Liquidation: Closing a business and selling all assets

A few critical components of an exit strategy may include:

• A target date for the exit

• A concrete plan for maximizing the value of the business post-purchase

• Whether to transfer the business internally or externally

• How to ensure continuity of the business during the transition period

• A concrete plan for improving cash flow and maintaining the financial security of the business

• Clearly defined roles (if any) that the owner will have during and after the sale 

3. Business Valuation

The clearer your company’s value is to buyers, the more likely they are to purchase it. Determining a business’s value can be done both quantitatively and qualitatively.

First, look at your company’s assets. This is everything your company owns, from tangible assets like real estate and equipment to intangible assets like intellectual property. Add up the value of every asset while subtracting debts and liabilities, which will give you the business’s book value. (You can hire a valuation expert to help with this process.)

Next, analyze and calculate key profit and revenue metrics to determine how much a business generates. This gives you an objective idea of the business value. 

Important metrics may also include:

• Net Profit Margin: (Net profit / Revenue) x 100

• Debt-to-Equity Ratio: (Total debt / Total shareholders’ equity) x 100

• Return on Investment: (Profit / Cost of investment) x 100

• Market Share: (Total sales of the company / Total sales of the market) x 100

• EBITDA: Net Income + Interest + Taxes + Depreciation + Amortization

Some qualitative ways to measure a business’s value include quality of management, core competencies, customer satisfaction, industry trends, and more. You can gather insights on these from surveys, interviews, reports, reviews, and social media.

4. Hiring a Business Broker

A business broker facilitates the entire business sale process. They help with valuation, buyer screening, negotiations, and anything else that could make the process smoother. 

Review these important questions to ask a broker:

• Experience: 

• Do they have enough experience in the field?

• Are they knowledgeable in different types of exit strategies?

• Do they have a high success rate?

• Are they knowledgeable on current market conditions?

• Licensing

• Is your broker licensed and certified to operate in your state?

• Reputation

• Does your broker have a good reputation in the industry?

• Are there positive reviews and testimonials from previous clients and references?

• Fees

• What’s your broker’s commission fee structure?

• Does this structure best suit your current situation?

• Are there any additional fees?

• Negotiation Skills: 

• How specifically do they handle negotiations between buyers and sellers?

5. Due Diligence

Due diligence is when a buyer asks for information about a business to gauge its value. When your buyer begins the due diligence process, prepare all necessary documents to help the buyer make an informed decision.

Take note of the following information that the buyer may ask for:

• Finance: This may include financial statements, cash flow, assets and liabilities, tax statements, financial projections, and similar. Make sure these records are accurate and complete with no discrepancies.

• Operations: A buyer will want to know more about the specific processes of your business, including marketing and sales strategies, inventory, supply chains, IT management, and cyber security. 

• Legal: This may include corporate documents like contracts, articles of incorporation, bylaws, and stockholder agreements. Be transparent about any past or current lawsuits and litigations as well.

Since you’ll be sharing sensitive information during due diligence, a nondisclosure agreement (NDA) helps ensure confidentiality and prevents the buyer from disclosing anything without authorization. When in escrow, consider transferring the signed purchase agreement into escrow to keep this information safe for both parties.

6. Choosing a Buyer

Having one buyer doesn’t guarantee that they’re the right buyer. Every interested buyer will present different terms and negotiations; choose the one that suits your needs best.

Some things to consider when choosing a buyer include:

• Cultural Fit: Would the buyer work well within the company? Are they on the same page with the company mission statement? See if the potential buyer’s reasons for buying the company align with your reasons for selling it. 

• Financial Stability: Check if the buyer is financially able to provide funding for the sale. Check their funding sources, background, and if they’re pre-qualified by credit lenders (if they’re taking out a loan).

• Long-Term Goals: Does the buyer’s vision for the business align with the company’s long-term goals? Do they have a plan for sustaining the business? 

• Terms of the Sale: Look for a buyer who provides optimal sales terms, including purchase price, payment structure, asset vs. stock sale, liabilities and debts, and more.

7. Consult With a Professional Broker

Selling a business is a complex process for both new business owners and ones who’ve sold multiple successful companies. Working with a professional broker can help. A top business broker has access to buyer databases, close relationships with lawyers and bankers, and experience selling companies in every industry.

IBEX Middle Market Business Brokers states that brokers can help with deal structuring, due diligence processes, LOI negotiations, and marketing and email outreach campaigns. You can focus on running your business and keeping it in great shape for potential buyers and your loyal customers.