Whether you’re trying to decide if you should list your business for sale or take it off the market, answering the following 5 questions can help make a difficult, life-changing decision a little easier.
- How has COVID-19 affected your business?
Businesses unaffected or positively affected by the pandemic can and should move ahead with the process of selling as planned. Industries involving service, logistics, packaging, and technology could fit this profile. Owners of businesses affected negatively by COVID-19, however, are generally being advised to take a “wait and see” approach if possible, as the local, national, and worldwide economies continue to improve.
- Are you prepared for the sale of your business to take months?
On average, selling a business takes approximately 7 months but it could take much longer. The key factors in accelerating the sales process include establishing buyer’s comfort level regarding the sales price, the advanced preparation of due diligence documents, and the availability of buyer financing.
- Are you prepared for due diligence?
During due diligence, you should expect that a potential buyer will request key financial documents that support your business valuation, confirm that you are in good standing with the IRS, and verify your assets, intellectual property and marketing analyses.
Examples include the following:
- Financial statements including balance sheets, cash flow statements, and income statements.
- Loan and credit agreements.
- At least 3 years of federal, state and local income tax returns.
- Disclosure of assets, inventory, and contracts.
- Legal and regulatory compliance issues.
- Details of any intellectual property.
- Have you strategized to minimize your post-sale tax bill?
You should prepare for the tax consequences of selling your business. As a seller, your specific tax strategy will depend in part on the classification of your business as a sole proprietorship, partnership, S corporation, or C corporation. Additional tax strategies may include the specific structure of the sale, investment in Opportunity Zoning, and whether you are selling to another partner or employees.
- Have you addressed the personal and emotional implications of selling your business?
Like any major decision, some sellers will likely question whether or not they did the right thing after the fact. Seller’s remorse due to disappointing financials can usually be avoided with proper planning and realistic expectations. Reliable research, a professional valuation, strategic tax planning, and consultation with an M&A professional should eliminate surprises concerning your resulting financial position after selling your business.