Is it Time to Sell? | Peterson CPA Firm P.C.

Is it Time to Sell?

When you started your business, you probably didn’t think about its end. The first few months, years, or decades, your focus was likely growing your sales, developing new products or services, and building your reputation in the community. But, at some point, you may start wondering if it’s time to sell.

Walking away from a business into which your poured your time and energy can be a tough call. Paying attention to these signs, and bringing the right professionals onboard to help with the sale, can ensure a smooth ending.

Signs it’s Time To Sell

Are you snapping back at customers? Having to drag yourself out of bed in the morning, reluctant to go to work? While owning a small business isn’t necessarily “fun,” you should find it rewarding and emotionally fulfilling. A lack of engagement will communicate itself to your clients, and could harm your business.

Conversely, your business could be doing quite well. Sales are booming, employees are satisfied, and clients give you rave reviews. If you think that your business’ valuation (see below) would give you a healthy profit, it might be time to sell. It’s much better to go out on a high note than to be forced to sell a failing business.

That said, if sales and performance have been slipping, and your heart just isn’t in it anymore, you might want to exit before things get worse. If a sale would recoup your initial investment, or prevent a bankruptcy or other adverse credit event, it could be time to exit. Be honest with yourself about its long-term prospects and whether or not a downturn is temporary or permanent.

Other factors, such as being close to retirement age or health concerns, could indicate that it might be time to exit. Unless you have a partner, relative, or employee who has indicated their willingness to take over, your options are to either shutter your doors, or sell. Even if you just shut the business down, you’ll have responsibilities.

For whatever reasons you decide it’s time to sell, you can’t just turn off the lights and lock the doors. There will be legal and financial processes that you must follow.

You’ve Decided to Sell, Now What?

The first order of selling a business is to get organized. A valuation specialist, buyers, and banks, will need detailed information about your business’ operations and financials.

Bring in Your Accountant

Talk to your accountant about preparing audited financial statements prior to starting the sale process. They may suggest an audit of accounts receivable if you have a large balance that would be included in the sale. It could be necessary to perform a detailed inventory of finished products and their components.

Use a Business Valuation Specialist

To appropriately value your business, bring in an outside advisor. Your accountant may offer this service, but if not, they can likely recommend a business valuation specialist. This expert will look at items such as:

  • The value of inventory on hand
  • The value of fixed assets such as buildings and equipment
  • The amount of accounts receivable and payable
  • Your company’s standing in the community and industry
  • The value of any patents or intellectual property

As well as items related to your business’ history, such as sales growth (or decline). This is by no means a comprehensive list, and will vary significantly depending on if you operate in a goods-based or services-based field. The report they prepare will be given to any potential interested buyers, a bank who may finance a purchase loan, or other stakeholders (such as in a divorce).

Involve a Lawyer

Much of the work that a lawyer performed when you first opened must now be unwound. A partnership should be dissolved, you must deal with business registration and licenses, closing bank accounts and credit cards, and more. Failing to take care of any of these tasks could lead to fine and penalties.

For example, if the state thinks that your business still exists and you do not file taxes, they could fine you. Your lawyer and accountant will likely work together to ensure you’ve met all legal and tax-related requirements.

You should also have a lawyer draw up any sales or dissolution agreement. This document will contain the terms of the sale, payment or financing information if the buyer will continue making payments to you, and the legal obligations of both parties.

It is important to involve a professional in this process, as inaccurate or incomplete documents could open you to liability from the business’s ongoing obligations. As well, if you are financing the buyer’s purchase, you will need enforceable rights should they default.

Selling a business is an important decision, and if you decide to take the step you will need to hire the right professionals to help. A good business valuation specialist could get you more for the sale than you expected, a lawyer will protect your assets, and having an accountant prepare and sign off on your financials could reassure a lender. When you make the decision to sell, take your time to get it right.

Posted on September 26, 2020