Making a decision to buy or sell a business requires careful consideration of all factors involved. If you are the seller you must carefully prepare your business for sale and locate a qualified buyer. If you are a buyer you must carefully examine all aspects of the business.
Business owners choose to sell for a variety of reasons:
- Illness or death of one of the principals
- Partnership disputes
- Business no longer growing
- Owner retirement
- Insufficient capital
- Losing money
- Boredom or diminished interest in the business
The selling of a business is different than selling any other asset one owns. A business is more than an income-earning asset. It is a lifestyle.
As a result, the decision to part with it can be emotional. Personal ambitions should be weighed against economic consequences to provide a properly balanced decision to sell or not to sell.
Timing is everything. This applies to the decision to sell a business. A wise business owner carefully plans out the decision to sell.
A wise owner will recognize that a business should be sold only after proper preparation and not because of sudden personal frustration or a short-term slowdown in business.
Nearly every privately held business is operated in a manner that minimizes the seller’s tax liability. The same accounting practices and operating techniques that minimize tax liability also minimize the value of a business.
This is a conflict between running a business the way an owner wants and preparing the business for sale.
Plans to sell a business should be made years in advance of the actual sale. This permits time to adjust changes in accounting practices that demonstrate a three- to five-year record of maximum profits.
Audited statements are the best type of financial statements; they are easily verified by the buyer. The business should be clean, inventory current and equipment in good working order. Ideally, the buyer is only buying the assets.
A valuation report should be prepared. This report eliminates guesswork and the trial and error method of pricing that so many owners rely on to reach a selling price.
Having a professionally prepared appraisal eliminates this problem.
If you are thinking of selling your business, Lowcountry SCORE Chapter 650 can help prepare your business for sale.
SCORE Counselors provide free, confidential counseling. In Beaufort County call 843-785-7107. In Jasper County call 843-726-8126. Contact by email firstname.lastname@example.org or visit www.scorehiltonhead.com.
R. J. Le Tourneau is a counselor with Lowcountry SCORE.