WEALTH WISE

Selling Your Business? What to Know Before You Do

After spending years building and nurturing a business, it can be a difficult decision to let go. If you are considering selling your business, there are a number of key considerations to keep in mind before you put it on the block and start entertaining offers.

Identify Your Priorities

This includes your personal goals as well as financial priorities. Are you looking to simply cash in for the highest price? Do you want a continued role in the business after the sale? If your primary motivation is to execute an all-cash deal as soon as possible and walk away from the business forever, then you'll probably approach negotiations differently than an owner who is willing to help finance a purchase by close associates, valued employees, or family members.

Take Advantage of Timing

While it's impossible to consistently predict future economic trends, you can exert control over the marketability of your business in the time leading up to a sale. For example, if you have important leases or contracts that are about to expire, potential buyers might be turned off by the uncertainties and challenges of negotiating new deals. You may be able to improve your position by implementing long-term solutions before putting your business on the market.

Get a Fair Valuation

You should consider hiring a business appraiser or valuation expert to help set a fair and reasonable price. Depending on your situation, this role could be filled by an accountant, a mergers and acquisitions specialist, or by a CPA who specializes in business valuations. A professional appraiser's insights may be especially useful when it's time to put a price tag on important intangibles, such as "goodwill" or patents. Working with a professional appraiser can also help separate your emotions from the pricing equation. While you may have always dreamed of selling your business for a certain amount of money, a valuation expert can make a dollars-and-sense case for a realistic goal. In addition, an appraiser's assessment is likely to help you better understand the difference between your business's "financial value" and its "market value" -- that is, the difference between its quantifiable net worth and the price buyers are actually willing to pay.

Finding the Right Buyer

For many owners, the most difficult part of selling a business is not conducting the initial due diligence, but identifying prospective buyers. In all likelihood, you will discover relatively soon whether employees or family members want to make an offer. It will take more digging, however, to identify potential buyers from among the broader ranks of your customers, suppliers, competitors, and associates -- not to mention the entire universe of suitors you do not yet know.

Hiring a business broker may be a smart move. A qualified broker will not only have the contacts to introduce you to the right people, but should also possess the savvy to weed out "leads" who would only waste your time. Some brokers will help you prepare a "selling memorandum," which is a document summarizing all of your business's key features for prospective buyers.

Keep It Quiet Until It's Official

Finally, don't lose sight of the fact that offering your business for sale may be something you want to keep private, along with the details of your financial situation. Before you enter into serious discussions with anyone -- even a broker -- make sure that they sign a legally binding confidentiality agreement. Contact your Fifth Third Private Bank advisor to learn more about how we can help you prepare to transition your business.

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