We live in an extraordinary time where one of the only certainties we are offered is uncertainty.
You may be considering selling your California business. You’re not alone. Other business owners are also choosing now as the right time to exit their business.
In some cases, this is because their business is growing during this time, and investors love a healthy business. Still others are selling because they don’t want to face the challenges of recovery or are simply ready to retire, and the work of recovery is more than they are willing to take on.
However, before you put your business up for sale, there are several steps you need to take. Here are some questions to ask yourself before selling your California business now.
Are you ready to sell now?
This is an important question that you should also ask others, in addition to yourself. Is your business partner on board? How about your family and friends? How do they feel?
If you think you are ready to sell, sit down with those close to you and discuss it. The sale of your business may be the single most impactful financial event in your life, and you need to ensure that not only you are ready, but also those around you.
Are you ready for a thorough self-examination and assessment of your business?
Selling your business is always a time-consuming proposition, and your buyer will not only examine your business, but may also consider the person behind it. We’ll discuss due diligence in a moment, but please understand that you may be under a magnifying glass from the outset.
Be prepared. Often, criticism or questions may seem personal, but they are usually not. The buyer is simply trying to understand you and your business, and the best way for them to do that is to ask questions.
Do you have time to sell your California business?
This is an all-important question. Selling your business takes time, which may impact your ability to stay engaged in operations. You need to be prepared for this. That’s also why having a good business broker on your side is an advantage.
But don’t take our word for it. Join our mailing list and check out this case study of selling a manufacturing business to learn more.
Do you have all the facts to sell your business?
You’ll need a lot of data. A lot. Be sure to have all the facts about your business ready, including data and numbers to support any claims you make about customers, revenue, sales, profits, and losses.
Gather all these documents before deciding to sell. Do you know what helps you do that? Getting a business valuation. We offer a complimentary seven-step program to provide a general idea of your business’s value. When you’re ready for a certified business valuation, we can help with that, too.
Who is on your team?
We’ve mentioned a business broker, but you may also want to involve your accountant, attorney, and key employees in the selling process. Selling your California business takes a team effort, and it’s something you simply can’t do alone.
If you don’t already have a team assembled for your exit plan, now is the time to do so. Your business broker can help you find the right lawyers and accountants if you don’t already have them.
Is the buyer qualified to buy your business?
As soon as you put your business on the market, you will probably get many inquiries. They will be from a variety of buyers who fall into a few categories:
- The tire kicker is thinking about a business but does not have a firm business plan or funding in place.
- A serial entrepreneur who is looking for a new venture. They’ve done this before so that they may be ready.
- Investors and Private Equity Groups (PEG). They’ve done this before, too, and they have a team assembled and financing in place.
- A new entrepreneur. This person may have financing, but they will have a lot of questions about your business, and you’ll have to work to determine if they are qualified in your industry.
A good business broker will help you qualify these buyers and choose the right one for your business.
Do you understand letters of intent and due diligence?
Ah, the legal stuff. The first step in the sale process is that the buyer will provide you with a letter of intent (LOI). This outlines the conditions under which they will make an offer on your business and states that they will make an offer, provided that everything you have told them checks out.
After the LOI, the buyer will perform due diligence. All the scrutiny we mentioned above will start here. They will review your finances, business finances, taxes, and every aspect of your business, including verifying that you are not involved in any lawsuits or other legal actions.
This process will take the longest of any process in the sale, and the more organized you are with your data and facts already, the faster the process will go. Your business broker will accompany you throughout this entire process and often provides valuable assistance in delivering the correct information to the right person at the right time.
Does the buyer offer continuity for your team?
What about your current employees? Does the buyer offer continuity of employment to them, or will some of them be laid off or replaced? This is a good question, especially in the case of a merger-type deal.
You also need to consider when and how you will inform your employees that the business is for sale. This can be very delicate, as you don’t want the sale to affect customer or client relations or even your relationship with vendors.
What about deferred payments or owner financing?
Even if your buyer has financing and cash, sometimes to close a deal, you will have to offer some owner financing. You may even need to defer some payments or base others on the continued performance and growth of the business.
This can be an obstacle to the sale, and it’s best if you have considered these things and discussed them with your business broker and others before you decide to sell your California business now.
What does the transition look like when selling your California business?
How long will you stay on after the sale of your business? How will you assist your employees and customers in transitioning to the new owner? Depending on your business, you may have to stay on for some time.
That means planning your full retirement or year-long vacation (when we can retake those) may have to wait a little while after your closing date.
What are some everyday things that come up in late negotiations?
You can’t think of everything at the beginning of the process of selling your California business. Here are some potential issues that may arise during negotiations.
- Guaranteed Net worth of the entity that is the buyer.
- Financial Statements, and where and how they are held.
- Software licensing for every single computer.
- Other items
This is not a comprehensive list by any means. Nearly every deal is unique and will present its own set of challenges.
Selling a business in California is different from selling one in other states. However, if you start with these questions, you’ll be sure that you are ready to sell and that the sale process goes smoothly. It still takes time, and the help a business broker provides is invaluable.
Do you have any questions? Are you ready to sell your California business now, or do you simply need a business valuation to determine its worth? Explore the industries we specialize in, and then contact us today! We want to be your business broker in California.
Andrew Rogerson is a certified business broker based in Sacramento, California. Call Toll-Free at (844) 414-9700. If you prefer, email him at support@rogersonbusinessservices.com. Andrew services the whole state of California.