Preparing to sell your business? Here's what you need to know
The COVID-19 pandemic forced an economic reality that no business owner could see coming, reshaping industries and forcing owners to reimagine business models from the ground up.
But the pandemic had another side effect, too: It caused many company leaders to take stock of their priorities and reevaluate their succession plans.
In the past year I've heard from a number of Chicagoland business owners who are considering selling their small to midsize businesses. Some cite plans for an early retirement, while others are planning to spend more time with family or pursue humanitarian work.
Still others have been personally affected by the health crisis and can no longer make their businesses a priority. Some simply don't have the capital needed to keep the doors open.
Despite conventional wisdom, now is as good a time as any to sell a business, provided you are adequately prepared. Whether you're in the position to start identifying buyers or your sale is a few years down the road, the below steps will position you for a seamless, profitable sale.
Determine what's important
For many sellers, the price is all that matters. For others, the legacy and continuity of the business model is paramount. Determining what you want out of the sale is step one. Is it more important to secure top dollar or to make sure your employees have job security? Maybe you're ready to retire, and a fast-track sale is most important. These considerations will inform the entirety of the sale process and should be tackled first.
Secure a business valuation
No matter your timeline, understanding the value of your business is vital, helping owners determine how much to invest in it and how much it is worth to a buyer. Make sure a business valuation is prepared by a credible third party with knowledge of your industry and that it takes into account the pandemic landscape, identifying potential challenges and opportunities at it relates to the nation's recovery efforts.
Scrutinize company finances
Together with a tax advisor and legal counsel, review your company's financial data, organizing and packaging everything that might be of interest to a buyer: financial statements, tax returns, inventory results, capital expenditures, supplier contracts, payroll records. Do this early and often so you can make adjustments (e.g., cutting personal spending or renegotiating contracts). And remember, buyers expect a minimum of three years of financial records.
Demonstrate long-term value
For some buyers, the company's financial forecast will be sufficient to close the deal. However, most buyers today will be interested in the company's Environment, Social and Governance (ESG) strategy and how it fits within their value systems. Taking steps to make your business more diverse, more sustainable and more equitable can have a tremendous impact on its valuation and attractiveness to buyers.
Turn over the reins
Buyers want to have confidence that your business can run smoothly and profitably … with or without you. Identify a solid leader capable of both keeping the wheels in motion and guiding the business on a path toward growth, pandemic or not.
Selling a business in any economic environment is not without its challenges. An experienced attorney can guide you through the process, managing emotions, mitigating risks, structuring favorable terms and ensuring the transaction creates monetary value while honoring the owner's legacy.
• Geoffrey R. Morgan is a founding partner of Croke Fairchild Morgan & Beres where he provides strategic guidance on issues of corporate finance, M&A, corporate governance and compliance.