What do you think about before you plan to sell your business?

March 15th, 2010
You have been thinking of retirement, no one in the family wants to take over. Now you have to decide when do you want to retire, immediately, in a month, 6 months, year or a few years down the road. The best thing that you can do is plan for your retirement with as much lead time as possible. This gives you time to plan. Do you need to improve the business, do you need to spend some money, do you need to add more in the sales department, are you about to land a new customer, are you about to lose a large customer, will the market improve and you can take advantage of the upswing or do you predict the market will decline?

If you believe that you are about to lose a major customer and they leave before you sell your business, a purchaser can walk from the purchase of your business if a material change happens between the time you receive the letter of intent to time of closing. Since it often takes 6 to 9 months to close a transaction, the loss of a customer could kill the sale of the business in this time therefore it is best not to sell the business if you are about to lose a major client in the short term.

If you are about to land a new customer who will improve sales significantly and profits, why would you sell the business before you get to see the impact of your hard work and success in landing this customer? Purchasers of a business look at several years of financial information and do not base their purchase price on future sales although some could provide a contingent payment based on keeping that new customer but it will rarely be as good as if you had the customer for years and the profit was factored into the purchase price.

If you need to reinvest some money in the business, the additional costs will drop profits. If they result in profits in a year or two time, then the expenses will drop earnings which will drop the purchase price and the benefits will be received by the new owner after the sale of the business is completed. Therefore, timing of when you spend money is very important to the timing of when you sell your business.

Filed under: Selling a business — Gary Landa @ 9:22 am