11 Questions to Ask Yourself Before Selling Your California Business Now
We live in an extraordinary time where one of the only certainties we are offered is uncertainty. But even in light of the COVID-19 pandemic, and sometimes because of it, you may be considering selling your California business. You’re not alone. Other business owners are also choosing now as the right time to exit their business.
In some cases, this is because their business is actually growing during this time, and investors love a healthy business. Still others are selling because they don’t want to face the challenges of recovery or are just ready to retire and the work of recovery is more than they want to take on.
But before you just put your business up for sale, there are some steps you need to take. Here are some questions to ask yourself before selling your California business now.
Understand the Effect of COVID-19 on Selling your California Business
There are a number of effects on selling your California business now, during the COVID-19 crisis and in the period of recovery that follows.
First buyer and seller expectations have changed, and this is an evolving algorithm. Right now, sellers have lowered what they are willing to spend by 10-30% over pre-pandemic levels, but many business owners have not lowered the price they expect to get for their business in response.
Besides changing expectations, you may also be faced with what to do with any assistance you have received at this time. All PPP and CARES act relief you have received is in your name, and you probably can’t transfer those debts to a buyer easily. You need to structure your final sale accordingly and keep that fact in mind.
COVID has had many more impacts on the ins and outs of selling a business, and it is more important than ever to have the help of a Certified Business Broker.
Are you ready to sell now?
This is an important question and one you need to ask others besides yourself. Is your business partner on board if you have one? How about your family and friends? How do they feel?
If you think you are ready to sell, sit down with those close to you and talk in over. The sale of your business may be the single most impactful financial event in your life, and you need to make sure that not only you are ready, but so are those around you.
Are you ready for some deep scrutiny of you and your business?
Selling your business is always a time-consuming proposition, and your buyer will not only look at your business, but that may spill over to them looking at the person behind the business as well. We’ll ask about due diligence in a moment, but it’s important you understand at the outset the magnifying glass you may be under.
Be prepared. Many times, criticism or questions may seem personal, but they usually aren’t. The buyer is simply trying to understand you and your business, and the best way for them to do that is to ask questions.
Do you have time for selling your California business?
This is an all-important question. Selling your business takes time, and that may affect your ability to stay engaged with operations. You need to be prepared for this. That’s also why having a good business broker on your side is an advantage.
But don’t take our word for it. Join our mailing list and check out this case study of selling a manufacturing business to learn more.
Do you have all the facts to sell your business?
You’ll need a lot of data. A lot. Be sure you are ready to share all the facts about your business, include data and numbers to back up any claims you make about customers, money, sales, profits, and loss.
Gather all of these documents before you decide to sell. Do you know what helps you do that? Getting a business valuation. We have a FREE seven-step program that will get you a general idea about what your business is worth. When you’re ready for a certified business valuation, we can help with that too.
Who is on your team?
We’ve mentioned a business broker, but you may also want your accountant, attorney, and key employees in on the selling process. Selling your California business takes a team effort, and it’s something you simply can’t do alone.
If you don’t have a team assembled already for your exit plan, now is the time to get one. Your business broker can help you find the right lawyers and accountants if you don’t already have them.
Is the buyer qualified to buy your business?
As soon as you put your business on the market, you will probably get may inquiries. They will be from a variety of buyers who fall into a few categories:
- The tire kicker, who is thinking about a business, but does not have a firm business plan or funding in place.
- A serial entrepreneur, who is looking for a new venture. They’ve done this before, so they may be ready.
- Investors and Private Equity Groups (PEG). They’ve done this before too, and they have a team assembled and financing in place.
- A new entrepreneur. This person may have financing, but they will have a lot of questions about your business, and you’ll have to work to determine if they are qualified in your industry.
A good business broker will help you qualify these buyers and choose the right one for your business.
Do you understand letters of intent and due diligence?
Ah, the legal stuff. The first thing that happens in the sale process is the buyer will give you a letter of intent (LOI). This outlines the conditions under which they will make an offer on your business and says that they will make an offer provided everything you have told them checks out.
After the LOI, the buyer will perform due diligence. All the scrutiny we mentioned above will start here. They will look at you, your finances, your business finances, your taxes, and every aspect of your business, including making sure you are not involved in any lawsuits or other legal action.
This process will take the longest of any process in the sale, and the more organized you are with your data and facts already, the faster the process will go. Your business broker will stick with you through this whole process and is often a great help in getting the right information to the right person at the right time.
Does the buyer offer continuity for your team?
What about your current employees? Does the buyer offer continuity of employment to them, or will some of them be laid off or replaced? This is a good question, especially in the case of a merger type of deal.
You also need to ask yourself when and how you will share with your employees that the business is for sale. This can be very delicate, as you don’t want the sale to affect customer or client relations or even your relationship with vendors.
What about deferred payments or owner financing?
Even if your buyer has financing and cash, sometimes to close a deal you will have to offer some owner financing. You may even have to defer some payments or have some payment based on the continued performance and growth of the business.
This can be an obstacle to the sale, and it’s best if you have considered these things and discussed them with your business broker and others before you decide on selling your California business now.
What does the transition look like when selling your California business?
How long will you stay on after the sale of your business? How will you help your employees and customers transition to the new owner? Depending on your business, you may have to stay on for some time.
That means planning your full retirement or year-long vacation (when we can take those again) may have to wait a little while after your closing date.
What are some common things that come up in late negotiations?
You can’t think of everything at the beginning of the process of selling your California business. Here are some things that come up later on in negotiations.
- Guaranteed Net worth of the entity that is the buyer.
- Financial Statements, and where and how they are held.
- Software licensing for every single computer.
- Other items
This is not a comprehensive list by any means. Nearly every deal is unique and will come with its own challenges.
Selling a business in California is different than in other states. But if you start with these questions, you’ll be sure first that you are ready to sell, and that the sale process goes smoothly. It still takes time, and the help a business broker provides is invaluable.
Do you have any questions? Are you ready to sell your California business now, or do you simply need a business valuation? Check out these industries we specialize in, and then contact us today! We want to be your business broker.