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Four steps to follow when selling a business

Michael Quinlan profile pic

No matter the size of your business or the industry its in, it’s likely that you pour considerable time and energy into the operation every day as the owner. That makes the decision to sell the business very personal, and it’s important that the transition process is thoughtful and thorough.

The four steps below can help you navigate the process and complete a sale that you’re comfortable with that also meets your financial goals.

Start planning for the sale

Even if you’re years away from a potential sale, it’s a good idea to begin planning now. Find a trusted business advisor or investment banker who can help walk you through the ins and outs. Your current financial partners can make a referral if you don’t know who to work with.

There will be costs involved in working with an outside expert, but it will be well worth it in the long run, as they can help you set the right price and find the right buyer.

Determine your goal for the sale

In short, are you trying to maximize your return on the sale, or is the legacy of your business most important? The answer to this question will help you identify a sale strategy and find a buyer who aligns with your goals.

Select an exit option

Once you’ve identified your goal for the sale, you can begin to narrow in on how to facilitate the transaction. There are a few options available, including:

Sell to existing management: This might be your best choice if the legacy of your organization is most important, as current employees will likely have a good grasp on company culture. However, this may also require you to finance a large percentage of the purchase price, possibly through a mezzanine loan, which is a hybrid between traditional debt and equity.

Sell to a private equity firm or search fund: Selling to investors can help take your company to the next level and potentially bring back a large return, though it often requires selling a majority stake, so you’ll likely lose much of your control over the future of the organization.

Create an employee stock ownership plan (ESOP): This is another option if company legacy is important. An ESOP allows employees to purchase shares of the business, and they’re a great way to start an exit plan while also adding a nice benefit for loyal team members over the long run.

Initiate a strategic sale: There might be a local competitor or large national company interested in your business, particularly if they see strategic value in acquiring your brand. This would help maximize the value of your sale, but again, you’ll likely cede control over the future direction of your company.

Be prepared

No matter which sale strategy you choose, you’ll want to make sure your house is in order before proceeding. This means ensuring that financials are sound and getting a good grasp on any fluctuations in revenue and expenses, as the potential new owner will likely have questions in these areas.

There are a few other items to consider as the sale gets rolling. How long are you willing to stay with the business during the ownership transition? Will key employees stick around post-sale? Have you done the proper estate and tax planning related to the proceeds from the sale? How are you going to fill your time after the sale?

These types of questions are another good reason to work with trusted financial partners throughout the process. With the right help, along with a clear plan of attack, you should be ready for a successful sale.