30 Questions to Answer Before You Sell Your Business

30 Questions to Answer Before You Sell Your Business

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Personal Considerations

table of contents

Financial Considerations

Transition Timing

Value Drivers for Potential Buyers

Transaction Structure & Process

01

02

03

04

05

Want to sell your business –

now, or in the future?

Every business is unique, so every

business transaction is unique.

Your business’ ownership will transition one way or

another someday. It’s to your benefit to plan that

succession long before it takes place.

Long before you’re ready to hand over the reins of your

business, you should begin planning for how, when, and

sometimes even to whom that will happen. Taking a long-

term view on the exit strategy will help a business owner

make decisions that can maximize the after-tax value to

the sellers of the business.

The questions that follow will highlight critical areas you

need to consider before you begin the selling process.

Introduction


Why do you want to

sell your business?

The answer to this question – ranging from a

need for liquidity to health problems to

transitioning to a next generation – will help

determine the timing, types of buyers who

may be interested, and potential opportunities

and barriers to the transaction.


section 01

What will you do with your time?

If you are currently active in your

business, what do you want to do after

the sale?

Which of these sounds like your plan?

• Continue to work in the business for the new owner,

grow the business with its greater resources, retain a

financial interest in the business and look forward to

a second payday in X years.

• Hand the new owner the keys, pack my office and

retire ASAP to Arizona/Florida/Palm Springs.

• Continue work to transition to new owners for X

months, then retire and move to Arizona/Florida, etc.

• I have other business interests, I need capital and I

need to move on quickly.

• I have other personal interests or endeavors in mind

and I need to move on in due time.

• I don’t know.

If you do not have a plan for your life and your

time after you have sell a company, you will

likely find that selling the business and letting

go of something that has been a large part of

your life will be difficult.

Your answer to these questions will

affect the price, terms and type of

buyer you need to seek.


section 01

Are others aware and

supportive?

Are your business partners, co-owners,

stakeholders and family members aware

and supportive of selling the business?

Without a consensus for sale among key

stakeholders, a sale is more likely to become

derailed by objections – real or imagined –

along the way to a closing.


section 01

What is your income

requirement?

How much income do you

need to support you and your family

in your preferred lifestyle for your lifespan,

and how will you access it?

This is a key factor in whether you’ll have the type

of lifestyle you hope to maintain or achieve. If you

have other investments or sources of income

aside from the business sale, this may not be a

consideration in the business transaction at all.


section 01

9

What will you do

with your money?

Is your personal financial plan up to date?

What is your plan?

If you don’t have a current personal financial plan,

or know how you plan to handle any proceeds

from a business sale, you may not be prepared to

make the most informed decisions about a

business transition, nor prepared to take

advantage of a potential cash infusion effectively.


section 01


What is your business worth?

Understanding your business’ value will

provide a baseline from which you can

evaluate buyers and their offers.

You need at least a rough sense of your

business’s value to a prospective buyer, and,

ideally, an accurate and recent business

valuation conducted by an appropriately

credentialed business valuation professional.


section 02

How much do you

need to be paid?

How much do you need to be paid to

make the sale worthwhile for you?

This is not necessarily the same as your

business’ value.

Depending on your needs, it may be higher or

lower than an objective valuation of the

business’ worth.


section 02

What story do your

financial statements tell?

Do you have audited financial

statements? If not, do you have

professionally prepared financial

statements for at least 3 to 5 years?

When you are asked about your business, in

detail, can you describe your business to

someone – your product lines, your divisions

or departments, your story?

Can you pull up a timely financial statement

that sets forth the information consistent with

that story? That sets forth the operations of

those divisions and product lines as separate

profit centers?

A potential buyer will want to see accurate,

timely, and well-maintained financial records –

ideally, financial statements which have been

audited by an independent auditor for several

years. Having appropriately audited financial

statements helps give the buyer peace of

mind that the information is an accurate

representation of your business’ current

financial status.


section 02

Can you show

the buyer the money?

How predictable are your business

operations?

Are the business’ revenue streams from

different customer types or industries, and its

revenue streams from different products or

services predictable?

What about revenue streams for different

types of customers and products, historically?

The less predictable your revenue streams,

the more difficult for potential buyers to see

and understand their future earnings. Volatility

in your revenue stream can spook a buyer, but

if you can demonstrate predictability in certain

segments – customer types of industries,

products, etc. – that can help offset

fluctuations in other segments.


section 02

How accurate are your future

earnings stream projections?

Do your financial statements demonstrate

and support your claim for your business’’

future earnings stream?

“Financial” buyers are seeking a predictable

earnings stream whereas “strategic” buyers are

interested in acquiring a company for a specific

strategic reason (for example, eliminating

competition, picking up new customers, or

access to intellectual property).

Either way, both types of buyers are interested in

how the company’s earnings will offset the cost

of buying the business. All business acquisitions

are expected to pay for themselves.


section 02

Are you planning to provide

maximum tax benefits?

Is your business structured to provide

maximum tax benefits to you and to

buyers of the business?

C corporations are taxed at both the corporate

and individual owner level, while S corporations

and some other entity types (“pass-throughs”)

are taxed only to the owners. “Single tax”

structure reduces the gain on sale of the

business.

Further, in general, buyers are less willing to pay

premium prices for a C corporation’s stock,

because they lose future tax benefits. A mergers

and acquisitions advisor can help you best

structure your capital, ownership and type of

entity to create greater after-tax value for you as

a future seller and value to the buyer.


section 02

Do you need cash?

How long are you able to wait to receive

the entire sale price of the business?

A need for quick liquidity can hurt the selling

price of the business; if you’re patient, you may

be able to ask more if the purchase price isn’t all

due immediately.


section 02

Who’s watching the change?

Are you monitoring the change in value of

your business?

Privately held companies cannot monitor their

market value daily in the market, but in

consultation with a business valuation

professional, they can develop a benchmark

value, which is an over-simplified but

straightforward calculation of an indicated value.

This benchmark value is a component of the

monthly financial reporting package that helps

management to identify trends in the company’s

value.


section 02

Transition Timing

Are your ducks in a row?

Is your business ready to sell now, or are there

operational, legal, financial or personal matters

that must be taken care of before you can

consider a sale?

Is your business “showroom ready” for a potential buyer

to conduct due diligence? If there are matters you’d prefer

to settle so as not to alarm a potential buyer (for example,

a lawsuit being settled or a key employee considering

taking another job), or that simply need to be taken care

of before a sale can occur (for example, completing your

most recent audit, that state tax nexus study, or other

outstanding matters), check those items off the list so that

if a prospective buyer turns up quickly, you can take

advantage of the opportunity instead of missing it.

Transition Timing

section 03

How long will you wait?

How much longer are you willing to stay

in the business? Are you willing to wait

months, or even years, for a business

sale to take place?

The time to consider selling your business is

before you NEED or WANT to sell it. A business

transaction is a process, not an event, so if you

have a short deadline, you may be forced to sell

for less than you’d wanted to meet your

timeframe.

Transition Timing

section 03

Can you walk away?

Are you mentally prepared to walk away

from the business if the transaction does

not include a future role for you?

Strategic buyers may retain a business owner

for his or her relationships, management skills

or other knowledge. But if a buyer plans to

install his or her own team, are you prepared to

step away from what may be a lifelong identity

as a business owner and executive?

Many business owners may find themselves

getting cold feet during a potential sale if they

are reluctant to give up some of the visibility

and perks that accompany running a company.

Transition Timing

section 03

Who is on the

“do not sell to” list?

Are there specific buyers or types of

buyers you are NOT willing to sell to

(such as competitors)?

If you have goals beyond financial ones, such

as ensuring that the business continues on after

you leave, you may not want to sell to a

competitor who would simply shutter the

operation.

These limitations may decrease your pool of

potential buyers, but it may be more important

to you than maximizing the final sale price.

Transition Timing

section 03

Value Drivers for

Potential Buyers

Do you know your SWOT?

Can you outline your company’s

strengths, weaknesses, opportunities and

threats from the perspective of a potential

buyer?

Financial and operational analyses like these

are how potential buyers will evaluate your

business.

Before you consider a sale, try to envision how

a future buyer would see your business – both

good and bad. Then take what steps you can to

eliminate the bad and heighten the good.


section 04

Are you keeping up?

How does your business compare with its

peers and competitors?

A potential buyer will look at how your business

stacks up against others with a similar business

model or type of product. If your industry offers

benchmarks, see how you compare and where

you might need to work on improvement.

Additionally, a prospective buyer may be

looking at not just how your business performs

compared to a competitor, but whether that

competitor may be a better acquisition.


section 04

Who’s looking to buy?

Do you have a sense of what kinds of

companies might be potential buyers?

What companies would strengthen their market

position or strategic advantages by purchasing

your company? What types of buyers have

already purchased companies in your industry?

These may be strategic buyers, while financial

buyers may come from a much wider spectrum

– any company looking for an acquisition with

good earning power and the potential to make

a profit through sale in the future.


section 04

Do you have a good team?

Do you have a strong and stable

management team in place?

A company with a stable and strong

management team in place is worth more than

one with high management turnover or key

positions in transition.


section 04

How diverse are

your operations?

Are your customers spread over a

diverse range of organizations, or is your

revenue highly dependent on a few large

customers or orders?

Your earnings stream is more resilient if your

company has a diversified customer base. If a

high percentage of earnings is tied to one or

two key customers, earnings projections could

quickly change with the loss of those major

customers, and that is a risk potential buyers

may not be willing to pay a premium for.


section 04

How stable is the future?

Are the primary factors affecting your

business’ success fairly stable – such as

regulations, raw materials or vendor

prices, market demand, and technological

innovation?

Any business can be disrupted by unexpected

events, but if the industry you’re in is in the

midst of transforming change, buyers may be

more wary and less willing to gamble on a

purchase.


section 04

Who’s on the field and who’s

on the bench?

Do you have a succession plan in place

for not only yourself but also for your key

management team members?

This is a critical consideration for strategic

buyers, who may seek to retain the entire

management team.

Regardless, even financial buyers will want to

know a succession plan is in place, as

leadership turnover can greatly affect customer

relationships, employee retention and earnings.


section 04

Is there a talent gap?


section 04

Are the people included in your

succession plan aware of their role?

Do they have the training, skills and

experience to perform their duties?

Does the organization have a clear

understanding of the plan?

A succession plan is more than a vague idea

of what might happen if you leave the

company. It is a time-specific, person-specific

plan for how the right leaders will gain the right

experience and training to take on their roles

in the company’s future that is shared and

understood within the company.

Operating without clearly communicating a

succession plan risks losing employees and

leaders who don’t know what the company’s

future is and what role they may play in it.

Transition Structure

and Process

Is there a consensus?

Transaction Structure and Process

section 05

Does everyone who can veto a

transaction agree on the transaction’s

financial and timing requirements?

The time to discuss transaction goals is before

the company seeks buyers – not during the

transaction process. Getting consensus before

the company goes to the market helps avoid

some of the emotional decision-making and

changes that can delay or kill a deal

altogether.

What will you concede?


section 05

Have you considered what types of

concessions you may be willing to make

to further transaction – and what types

you will not?

Before any offers are on the table, consider

what deal-makers and deal-breakers may be

for you – but try to remain as flexible as

possible to get the best offer.

What about wealth transfer

considerations?


section 05

Are there wealth-transfer considerations to

next generations that should be built into the

transaction or purchase price?

If you hope to pass on wealth acquired from a

business sale to children or grandchildren, estate

planning professionals should be consulted to

minimize estate tax liability.

Tax and estate planning may offer strategies such as

a portion of the sale proceeds going directly to next

generations, which are presumably taxed at lower

rates.

Who’s advising you?


section 05

Have you identified qualified and trusted

advisors to help you through the

process, including attorneys, business

valuation specialists, CPAs, and

business brokers experienced in

mergers and acquisitions?

Selling a business may be the single largest

transaction a business owner ever engages in.

It requires specialized knowledge of business

law; business, estate and individual tax

regulations; business valuation, corporate

finance, and many other highly technical and

regulated areas.

Trying to go it alone can cost you lost

opportunities, wasted time, fewer and lower

offers, and higher risks. Any fees paid to have

professionals help guide you through the

maze of a business sale are more than

recouped in peace of mind and a higher

likelihood of a successful sale.

Contact Us

For more information, contact us for

a free initial consultation on how we

can help build value with your business.

Gary Gibbs, CBA, ABV

Executive Vice President

Corporate Finance Services

316.291.4014

[email protected]

Mike Shook, CM&AA

Vice President

Corporate Finance Services

316.291.4041

[email protected]