It is often hard for business owners who have dedicated their lives to their companies to shift their mindset to letting go. However, an exit at some point in time is unavoidable, so why not prepare early and ensure your departure is on your own terms?

1. Mentally prepare

The best way to minimize your apprehension around the sale of your business is to identify your fears and address them head-on. Have difficult conversations about what the sale of a business would mean to you, your family, and potentially your key employees. These discussions are especially important in family-owned business settings where company and family dynamics are closely knit together. Think about what you truly want to achieve through the sale process. For example, what are your goals in selling your company and what are your goals post-sale?

Do you want to maximize top-dollar or are you more concerned with preserving the culture of the business for your employees? The financial payout of selling comes at a cost: loss of control. Are you ready to let someone else take over the reins? Sometimes a seller stays on, wanting to remain part of the business that he or she founded, only to be discouraged when new owners change things up. You must be willing to recognize that the new owners may take your company in a different direction or make decisions you do not like. This can be very upsetting for former owners who have poured their heart and soul into their companies.

Do you want to continue to work for the company after the sale in a more limited capacity or do you prefer to ride off into the sunset? Two main reasons for staying on board are to maximize the sale price and keep yourself engaged after the closing. For example, if the company requires relationship-building with suppliers and customers, a seller can provide value to the buyer by agreeing to stay on during a transition period to help the new owners. Such an engagement can be part-time or even on a consulting basis, depending on the buyer’s needs.

On the other hand, some business owners sell because they want to do something entirely different with the rest of their lives. Pending any mutually agreed upon non-compete restrictions, you could have the opportunity to explore other areas of interest and possibly start a new endeavor.

2. Is this the right time to sell?

If your company has suffered losses or is on the decline due to the economy, supply chain disruptions, or labor force reductions, this may not be the right time to sell. The best time to sell your business is when it’s doing well. What does “well” mean? It’s when the financials are trending upwards, sales are strong, you have a strong staff, and demand for your industry is high. Like buying and selling stock on the market: buy low, sell high. Buyers are not going to invest in a business that is suffering, and those that do will not pay what you likely believe your business is worth.

3. Are you ready and willing to answer questions?

It is important to ensure you are in a place in your life where you can spend significant time dedicated to the sale process. In some instances, this process can take more than a year to complete. That’s a long time to spend on matters outside of the actual management and running of your business. Too often business owners focus their time and effort on selling their company and neglect the business itself. Due diligence can be a complex, stressful and exhausting process on both sides. Buyers will ask lots of questions. They will want to know about the history of your business, your business partnerships, your customer relationships, your future predictions, and oftentimes why you want to sell your business in the first place.

It’s good practice to ask yourself questions as well, such as is your company up-to-date technologically? Now that technology is a part of every company’s business, things have changed. Cybersecurity has become part of every M&A due diligence. Do you have a current cybersecurity policy? Do you have an incident response plan? Do you have a privacy policy that is actually used in your business?

Do you have sufficient management in place that can successfully continue the business without you? You need key employees who will continue to drive cash flow, especially if you plan to exit the business or will have limited involvement in day-to-day operations.

Is your revenue concentrated too strongly in one or two main customers? Losing one of these customers can have a devastating impact on revenue and cash flow, therefore making a buyer weary of the impact your departure may have on those relationships.

Are your records current and complete? Buyers will want to see many internal operational documents. This can include organizational charts, corporate minute books, employee handbooks, processes and procedures manuals, vendor and customer contracts, cybersecurity and data privacy policies and other related documentation. If your records are not current or you are missing vital documentation, consult an attorney and have those brought current before you market your company to potential buyers.

4. Assemble your team

Another important step before putting the business up for sale is to assemble a strong team of experts. You should have an accountant to handle any financial questions the buyer may have and an experienced M&A lawyer to advise you on the contractual side.

It is also a good idea to have a professional business valuation done by someone who is familiar with your particular industry. The three most commonly utilized valuation calculations are the discounted cash flow, market multiples, and asset valuation. Obtaining this information will give you a starting point in setting your expectations for a fair price for your specific business.

Also consider finding someone else who has gone through the sale process and talk to them about their experience. While no transaction is alike, it is always good to learn from others who’ve experienced the sale process to potentially avoid missteps in your own transaction and to better manage your expectations.

One of the easiest decisions you can make during the transaction process is which legal advisor to use. The team at Brouse McDowell is experienced in all aspects of a transaction and would be happy to help you through the sale of your business.