Maybe you’re selling your business to retire or you’re handing over ownership to a successor. Or perhaps your business has become a financial burden and you feel it’s time to let go. Whatever the reason for selling your business, consider all your options, along with the benefits, consequences and costs.
Previously, we have discussed the most common mistakes business owners make in selling their business. Transferring business ownership is often a complicated process, with rules and regulations to follow.
Here are six key factors to consider before you sell your business.
When you are ready to sell your business, the U.S. Small Business Administration advises you to start with a plan. You need steps to navigate the process. Given the complexities of ownership transfer, the SBA also recommends having a lawyer and business specialist involved.
Exiting your business comes with legal, regulatory and tax obligations you must meet. After the exit strategy, state and federal taxes and regulations top the list of things to consider. For help with federal guidelines, see the IRS guide for closing your business.
Sole proprietors may decide on their own how to exit their businesses. However, collective owners of partnerships, limited liability corporations and corporations must agree on a strategy, which usually is written in their rules and bylaws, and comply with state and federal regulations. Contact your state secretary’s office and revenue services department for help.
Type of Sale:
Personal and financial situations help determine the best type of sale for your business. Here are options to consider:
- Outright sale. This is a full and immediate transfer of your business and assets. Consider this option for a quick and complete transfer of ownership.
- Gradual sale. If you’re not ready to give up the revenue your business generates but don’t want the full, everyday responsibility of ownership, a gradual sale might be a solution.
- Family sale. When passing the business on to a relative through a family sale, understand the gift and estate taxes involved – they affect both buyer and seller. The SBA recommends creating a succession plan for this type of ownership transfer.
- Liquidation sale. If you don’t plan to keep your business’s furniture, supplies and equipment, you might think about liquidating these assets. A “retail” or “going out of business” sale is one option. The SBA describes more options – click here.
- If you’re forced to liquidate your assets through bankruptcy, consult your lawyer.
No doubt you are concerned about the sale’s effect on your customers. Bill Whitehurst, a certified business broker, says that minimizing any damage that public exposure of the sale might have on customers, employees, competitors and suppliers should be part of your exit strategy.
- Protecting customers’ personal and financial information, such as credit card and banking data, is vital. The new business owner wants your customers — they might have been a major incentive for the sale. But unhappy customers won’t stay and might even sue. Get information from the SBA on protecting and securing customer information.
You likely plan to stay on a while to oversee the business’s transition to the new owner. You may need the managers and staff who remain with the company to help, as well. Make preparing employees for the transition one of your exit strategies. Otherwise, you might need to stay on longer than you planned, warns Whitehurst.
If you are ready to sell your business and have questions, please contact us.Additional Resources: