For many business owners, there comes a time when the best decision is to sell the company and move on to the next stage of life. If you’ve reached the point where you’re ready to sell your business, there are a few important steps you need to take to do it the right way. We understand all aspects of Massachusetts business law and we are intimately familiar with the practical needs of business owners.
Here are the basic steps you need to get ready to sell your company:
- Prepare your books. Anyone who purchases your company will need to conduct due diligence, and they can’t do so before the financial, legal, and other aspects of your company are ready for them to view. Working with your accountant, gather and prepare your company’s financial statements, business tax returns, and bank accounts. You should have at least three years’ worth of these records.
- Make sure all income and assets are accounted for. If you have vehicles, equipment, or real property, collect the relevant documents such as deeds and titles. If your business has contracts, get those ready as well. Imagine that someone wanted to come in and know everything pertinent about your business. That’s the essence of due diligence. Being prepared early can save you headaches later.
- Clean up the business. This doesn’t refer to the physical location of your business (unless it really does need a good cleaning). This means taking care of matters which have weighed your business down and could deter a potential buyer. Does your company have bloated inventories? Are there managers or employees who need to go? Are your operating systems outdated? Address these now.
- Maximize the value of your business. Have you delayed acting on existing business opportunities? Are there debts or court judgments that would detract from the value of your company? Do you have outstanding contractual obligations that need to be wrapped up? Have you considered ways to boost sales and reduce expenses?
It’s never a good idea to sell a company when still more can be done to enhance its value. But handling these and other matters can make your business worth more. And they feed naturally into the next step.
- Value your business. A third-party valuation, like an appraisal of a home, can be useful in determining a fair amount for which to sell your company. It’s no guarantee that the person buying your business will pay that dollar figure. However, assigning a value to your company provides an objective basis for the amount you want.
A business valuation will determine the financial health of your company by taking into consideration its cash flow, accounts receivable, assets, and more. It will also look at the overall market, industry trends, the location of the business, and other broad factors. Organizing the above-mentioned records first will expedite this process.
- Prepare for your financial future. You may be selling your business because you plan to retire, or because you want to start another one. Perhaps you will be entering an entirely new industry than the one in which your current company operates. No matter what your next stage is in life, you need to be ready for it.
For example, you will want to understand the tax implications of a sale and how much actual money you will end up with when these and other liabilities are considered. This will inform you as to how much money you will have to retire on or use to start a new company. If you intend to enter a new industry after you sell the business, you will need to learn as much as you can about it now. Don’t sell your business before you have a clear plan of what you’re doing next.
- Talk to a business lawyer. Lastly, don’t overlook the legal needs that will arise as you sell your business. An attorney can assist with important obligations that have to take place during the preparation phase, such as terminating unproductive employees and settling judgments. Your lawyer can also draft the purchase and sale agreement that you and the buyer will need to execute.
Selling a business is a major life decision that should not be taken lightly. That’s why so many businesses turn to SederLaw. Our Business & Corporate Law team can set you on the right path for a successful sale of your company. Get in touch with our office today.