The business you have built is at a stalemate. You have been pondering about the possibility of selling. But when is a good time to sell off a company?
“The best time to sell is when you’ve reached the goals or milestones identified in your business plan. This presumes your ‘sale’ horizon was one planned for and achieved. Unfortunately many small business owners or entrepreneurs don’t manage the core of their daily operations with a plan and therefore find themselves led by unpredictable and un-measurable trends and demands. Absent a well-defined and flexible plan, selling your company in the midst of crisis undermines its value and the owner from receiving the highest gain,” says Deborrah Gilbert, executive director, Moretta Economic Development Corporation. “The idea of one day selling a company deserves planning, thought, and solid financial reports. This helps to secure the best value when faced with the opportunity to sell.”
According to business consultant Dr. Anita Davis-DeFoe, when it comes to putting a company on the market, it should be all about business, nothing personal. “The best time to sell is when there is no dire, personal reason to sell. Sell when the business is highly profitable, and the future of the industry is filled with possibility. A business owner when considering the sale of a business should evaluate personal, business and market timing factors prior to making the decision to sell. Personal issues may range from retirement, illness, seeking change or intense burnout. Typically, it is not the best time to sell when personal issues are the driving force as emotions are dominating the decision, and this too often results in a quick willingness to accept a price far less than the business’s worth,” says Davis-DeFoe. “Company timing – such as the business is flourishing or managers and work teams can effectively operate the company – is an excellent time to consider selling. But so often because operations are going well, business owners do not think of selling at this time. This is a prime time to sell as buyers have a better chance to obtain financing, and the value and future growth of the company can be strategically visualized.”
Once you’ve made your decision to sell, seek out potential buyers and bids through various ways. “Ask your professional network and become a member of a professional organization in your industry. Develop relationships and attend networking events, annual conferences, or trade shows,” says Davis-DeFoe. “This is a good way to meet, share ideas and ask for recommendations related to your strategy while growing into the eventual opportunity to sell to a potential buyer.”
Just like interviewing employees, it is a good idea to check out the potential buyer before signing on the dotted line. “Look into the history or business practice of the party offering the bid and what they intend to do with the company being purchased,” agrees Gilbert. “With the assistance of an attorney or intermediary, a screening process should be considered. Pre-qualification is an important part of the process and one most business professionals are accustomed to anyway. Pre-qualification, a healthy round of due-diligence to determine financial solvency, and the bidders’ business practices will also help eliminate stress around the issue of your buyer’s ability to close on the deal.”
The price you’re seeking should be based on the current value of your company. “Price is based on value. The value is somewhere triangulated between your perceived and stated value, the value your financial statement supports, and the value a buyer places on your company and/or brand. Take into consideration such terms as ‘currency valuation’, ‘gross gain’, ‘tax liability after the sale’ and then your ‘final net after key expenses have been factored’,” adds Dr. Davis-DeFoe, “The best approach is to buy low and sell high. Clearly a business owner should consider selling a company when organizational health is vibrant, not when the company is compromised. Examine the economy, industry and merger trends, capital flow, and the performance of the company when pondering a decision. Seek the professional counsel of a broker and an accountant to determine the worth of the business. A broker can lead the effort to identify a suitable buyer and a profitable price.”
One you have everything in place, comes one of the most difficult aspects of selling off a company–negotiating. Seek counsel, says Gilbert. “Most business bids are prepared with legal counsel or advice on the structure going in. So it makes sense that you should factor in professional review to represent your interests, too. Seek a business attorney in your state familiar with your industry and sales scenarios. Remember to ask for references,” she notes. Also, during negotiations, make sure the potential buyer understands the brand. “If the core values and social consciousness of the prospective buyer are important, these issues should be raised throughout the negotiations. Further, unless the business owner will play a role in the business once sold, a name change may need to be requested as ensuring that the levels of quality customer service or brand excellence in the marketplace will be difficult to maintain and impact as the former owner,” explains Dr. Gilbert concurs. “Write in stipulations that allow you to maintain creative control to the degree that you are concerned. Your request should be clear with mutual understanding for a specified duration agreeable between you and the buyer,” she says.
Make sure to meet with your staff and prepare them for the sell. “Employees should be notified of substantial changes in a manner consistent with notice policies, hopefully with the dignity of a staff meeting to have the opportunity to ask questions and receive answers from management personnel that can help with the transition and translation of the information shared. This is also a great way to dispel rumors and allay fears and negative information. At the very least, when possible, employees should be told such news before they read in the local newspaper or see on the 5:00 news that their company is sold or being sold,” says Gilbert. “An educated staff is best,” says Davis-DeFoe. “Informing employees of a potential sell early is critical as rumors too often lead to decreased employee engagement, and this can be hard to restore if no sale occurs,” she notes. “Transparency minimizes uncertainty and benefits both the seller and prospective buyer. Maintaining employee performance is of value to the seller as it relates to business profitability, and to the seller as this impacts future growth.”