When you believe it is time to sell your business, it is not enough to hand it over to the next owner and move on. There is a thorough process to follow and three key owner concerns to consider when you sell your business.
The three main owner concerns are cash, confidentiality, and continuity. Collectively-for lack of a better word-these concerns will help you discover who to sell your business to, how to value your overall entity, and how to do it discreetly. You will also recognize the steps for helping your customers and employees transition to the change as well.
Answer these three questions when identifying the three C’s in your business selling situation:
- Cash: Will I receive the value of my business when selling it?
- Confidentiality: What process can I follow to sell the business carefully without others knowing?
- Continuity: How will your employees and customers be affected once the business has been formally sold?
Cash
For all the hard work you have invested into the business and for the time frame you have owned, you want to get the most value when selling it. Calculating your business’ assets and deducting the liabilities and debts you owe will decide the overall value.
Business assets – Liabilities = Discretionary cash flow
Your business assets are divided into two categories: tangible and intangible. Tangible assets are furniture, equipment, inventory on hand, and cash physically in the register. Intangible assets are your brand image and reputation, how many loyal customers you have in a rewards program, and if you have any intellectual property such as copyrights, patents, and trademarks.
For each furniture and piece of equipment, do the following process:
- Research the market value of each item and how long they last.
- Calculate the depreciation for every item and note that value.
For example, if a desktop computer lasts 10 years, you paid $1,500 for it, and you would deduct $150 off the value for each year that your business has owned the unit. For example, if you purchased the desktop two years ago, you would deduct $300 off the original market value for a current value of $1,200.
Confidentiality
Unfortunately, people talk and spread rumors when change happens. However, you are protected under business selling confidentiality. You do not want your employees, management, or vendors to discover too early that you are in the process of selling your business because it can create panic from them thinking there will be uncertainty in their employment in the future. A Neumann & Associates, LLC, leading business brokers on the East Coast say, “In today’s competitive business environment, maintaining confidentiality is of paramount importance. For many business owners, they have worked and developed their business over many years. Selling their business is a one-time event. During the selling process, it is important for an owner to keep their focus on running their business. Maintaining confidentiality helps avoid potential pitfalls and a smooth transition.”
The negotiation between you and the business buyer should be strictly confidential. Even as the transaction is ongoing, have the buyer sign a confidentiality contract. This contract will state that they cannot discuss anything related to the business with family, friends, or other colleagues while the transaction is being finalized.
Continuity
As your business transitions under new management, you must contemplate if there will be continuity. This means your employees will still have stable jobs and your customers will want to support your business even if you are not the owner anymore.
Thankfully, many business transactions do not come with any large staffing changes because you as the owner built up this brand image and the team over time. As for your customers, inform them at the last minute of the business change, but be sure to inform them that nothing will change.
