Guide to Selling Your Business, Part 1: Planning and Preparing

By Dennis Michaels

Whether your business is a high-growth start-up or a more mature and established company, an exit plan is almost as essential as your plans for continued growth and profitability.

With a substantial portion of your net worth tied up in a business that may have taken decades to grow, the decision to sell — and on what terms — can’t be taken lightly. With time and advance planning, sellers can more effectively position their business in the market, reducing risk to both buyer and seller and ultimately maximizing the value they retain.

Preparing Yourself for the Sale

An understanding of both the selling process and the psychological toll that process can take is essential in preserving your mental health and staying focused on the big picture. For the inexperienced, selling a company is a complicated process and possibly one of the most stressful negotiations of your career.

Sellers should seek out input from industry peers, from experienced friends and advisors who have faced similar experiences. More often than not, their advice will relate to the emotional toll the process can take, rather than the purely business aspects of the sale.

Most sellers underestimate how time-consuming and disruptive this process can be. The stress and uncertainty and take its toll on relationships with family, employees, customers and vendors. For an owner who has always been able to call the shots, having to answer to third parties in the sale process and having past decisions scrutinized by outsiders can put him or her on the defensive.

Understanding that the sale of a business is both a negotiation and a process can help a seller to better understand (and prepare for) the roller coaster dynamics and stay focused on the big picture.

Properly Planning Ahead

Maximizing the value of a business in a sale is not an overnight process. It may have taken years to build the business, but a seller considering a sale should begin the planning process early. Many sellers will need at least a year or more to prepare before starting the formal sale process.

By starting early, a seller has time to address potential issues in a proactive and cost-effective manner. Whether it’s a business, employee, accounting or legal issue, the more time you have to address it effectively, the lower the risk to the buyer and the greater value a seller is likely to retain.

In part two, I’ll explore the next steps of selling a business: valuation and control.

Check out Dennis Michaels’ Guide to Raising Cash here. Plus, read the rest of the “Guide to Selling Your Business” series at the links below:

Dennis Michaels is an experienced business lawyer focused mainly on start-ups, angel and venture capital financings, mergers & acquisitions, and corporate law. Dennis advises entrepreneurs, investors and companies about business issues throughout the corporate life cycle from formation through finance to exit. You can e-mail Dennis at DMichaels@boutinjones.com.
Originally published: Sep 23, 2011

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