If You Want to Sell Your Business, Get Started Now
You’ve founded a successful business and you’re thinking about selling it in the future. From my experience selling a successful software company, you’ll first need to make sure your business is in tip-top shape for potential buyers. While it could take a few years to get your house in order, it will be well worth your time and effort.
Here are my Top 5 tips for selling your business in order to maximize post-tax sales proceeds.
1. Your Back Office Should Be Buttoned-Up and Organized. No matter how spectacular your product may be, a buttoned-up and organized back office is worth much more to potential buyers than a boot-strapped, disorganized business. To get your back office in top shape, make sure…
- All your employment and client contracts are in order and as consistent as possible.
- Your intellectual property assets are in good, legal shape.
- You have your cap table and associated option issuances properly organized.
- You have implemented an ERP (enterprise resource planning) system for your financials.
2. Assemble a Super Management Team. While you may not think you need to spend money on putting together a super management team, do it. Buyers like to minimize risk and know that you have a great bench of talent. They will pay you far more than your costs.
3. Identify Potential Buyers and Consider Separating Lines of Business. Know who your likely buyers are and consider separating your lines of business to maximize your appeal. For instance, you may have multiple products and multiple lines of business that, as a whole, may not be attractive to any one buyer — they may not understand or value all divisions, which could ruin a potential deal. In fact, it is often the case where the sum of the parts of your business is far more valuable than the whole. You should always try to understand the likely acquirers of your business and separate the lines of business into their own entities because there is a much greater chance that by doing so you have a deeper pool of potential buyers.
4. Hire an Attorney Specializing in Trusts and Estates. It is critically important that you spend the necessary time and resources to implement an estates plan many years prior to a sale. By creating the appropriate trusts, you can ensure your wealth gets distributed to your future generations in the most tax-efficient manner.
5. Create a Charitable Giving Plan. One of the easiest options is to implement the use of a Donor Advised Fund (DAF). A DAF allows you to make charitable contributions to a fund, take an immediate tax deduction, and then take your time over multiple years to decide where the fund should distribute the funds. While your donation is sitting in the DAF, it is fully invested and growing tax free.
I hope these tips can be helpful to all entrepreneurs and business owners approaching an exciting sale.
