As of 2021, there were 32.5 million small businesses in the US. Businesses are often bought and sold, but determining when to offload is challenging.
Selling a company is no small decision, and this guide will help you figure out whether that’s right for you.
Here are five essential selling tips when listing a company for sale.
Tip 1: Time the Sale Correctly
When selling a company, timing has a substantial impact.
First, consider the economic performance of your business. Look at its financials over the past few years and use that to project future cash flow. Businesses with strong historical growth will be worth more.
You also want to examine the general industry and economic trends when selling your business. Factors such as new technologies, regulatory changes, governmental policies, and more can impact your company’s value.
Finally, whether you sell a company depends on your personal goals. Consider what you’ll do next (more on that soon) and if you’re ready to part with this company.
Tip 2: Understand Your Business’s Value
Before you can appropriately price and sell your company, you need to understand its value.
The value of a company is determined by:
- Cash flow
- Gross sales
- Asset valuation (name recognition, reputation, employees, customer loyalty)
However, certain external factors have an impact, including:
- Location
- Market trends
- Technological advancements
- Economic conditions
Considering internal and external factors will help you price your business more accurately.
Tip 3: What You’ll Do Next
Business owners may get cold feet when selling a company without any forethought into what the future will hold. Avoid this by spending some time planning your next move before the selling process is underway.
Planning includes having a post-sale personal financial plan to ensure you use the money wisely. Determine how you’ll use these proceeds to support yourself and your family.
You’ll also want to figure out whether it’s time to retire, start another business, or do something else entirely. Based on your skills, where would you like to go next?
Tip 4: Consider Tax Implications
The tax implications of selling a company depend on various factors:
- Company structure
- Capital assets
- Stock sale vs. asset sale
- Seller financing
- If there’s a merger
One of the most significant considerations is whether the sale will be taxed as ordinary income or long-term capital gains.
The maximum tax rate for capital gains is typically 15%, whereas the highest individual federal income tax rate is 37%. Thus, what you pay in taxes can differ considerably on this basis.
Tip 5: Build the Right Team
The selling process is complicated, so you want a team of experts on your side.
That means you’ll lose some money in fees, but this team will help you avoid mistakes that can cost far more than their fees.
Your team should include CPAs, lawyers, and business brokers. The former two are more obvious hires, but business brokers are also worth considering.
If you’re wondering, “why use a broker to sell my business?”, the linked guide will explain everything.
Selling a Company Is a Huge Decision
Selling a company is a big deal, and we hope this guide helps inform your choice. Take your time and carefully evaluate these five considerations.
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