This is a memoir of my financial adventure. Take my hand as I walk you through my amazing business journey, from how to start a business,* from the inception (a new business idea) right down to its final climax (selling out). All in five years!
When I brainstormed and built a new cosmetic manufacturing start-up firm, I never envisaged I would be selling it at some point, it never crossed my mind. I lived and breathed my business idea, my work, and my firm.
It was my ‘baby’ project and I enjoyed nurturing and growing it. I simply spent every waking moment at the firm, I was obsessed with growing my business idea into a successful company.
I could not do it alone, I needed someone to build with, so I recruited my then- boyfriend, now husband, to be my business partner.
Nobody was more surprised when after five years, I got up one day feeling the divine ‘nudge’, inspired by burn-out. It was time to sell the business!
Are you at that point? Where you feel like selling your business? Or maybe you are looking to start up on that awesome business idea of yours?
Please read on and learn some of my hard-won advice to help you on your quest for entrepreneurial success.
Dos and Don’ts for Starting up and/or Selling Your Business
Phase 1 – Startup
DO Keep Records of Systems, Processes, and Important Information
Write down all the steps for important business functions right from the start. Whether those processes are, as in my case, manufacturing instructions, or other actions, written details will ensure that those actions can be delegated, re-modelled, used as a prerequisite, or later sold, to others.
It is also very important to document and retain all records of sales, customer contact, suppliers, passwords, and orders. This information is referred to by accountants as ‘Goodwill’.** These intangible assets are a large part of a business valuation.
DON’T Brand your Business Using your Name
If, or when, you decide to sell your business the buyer will not appreciate your name on the front door especially if your business has grown a significant following. Branding your business with your name can turn off some prospective buyers who might think you are not actually selling a business, but just your ‘job’ or ‘client list’ which would be valued at a lot lesser buyout fee.
Phase II – Build your Brand and Business
DO Hire Professional Accountants
It is important to employ the services of highly qualified personnel in general, being able to call on the services of an in-house professional, highly qualified accountant experienced in small business matters is very important in keeping your company afloat. Regular accounting reports will be a big help when you prepare to list your business for sale. Professionally prepared tax returns and profit and loss statements will clearly demonstrate your company’s value.
DON’T Hide Profits for Tax Reasons
Business owners, myself included, can be tempted to write off some expenses that the business shows little to no profit. While this might save you, the entrepreneur, some money on your taxes in the short-term, it is disastrous for a future business sale.
An example, if you were considering buying a company would you like to see past year tax returns with no profits or realistic profit numbers?
Phase III – Preparing and Listing Your Business for Sale
DO Take your Time in Making the Decision
Before making a decision and taking a giant leap to listing your business for sale, take time and be sure that you truly want to sell your business.
Be sure that your decision is not being influenced by a bad day, week or month. Once the sale is complete it usually cannot be reversed. Make a list of the reasons you want to cash out. Are those reasons solid? If yes, then go ahead with the sale process.
I had a friend who listed her business (a salon), she, however, realised she did not really want to sell when she started getting buyer offers. It was a hard time for her and she could have been spared the trouble if she had taken her time in making the decision to put a ‘For Sale’ sign on her salon doors.
DON’T Expect it to Go Smoothly
Even in the best of transitions, there will be obstacles and issues that need resolving. If you go forward with this knowledge, the transition process will be easier for you. Also, do not take anything personally. Buyers will examine your firm very closely in a bid to determine if the asking price is fair. Some might insult your store’s décor, your product packaging or your service rendering, all in an attempt to reduce the asking price. Just roll with the punches.
DO Hire a Business Broker and Lawyer
Don’t try to save money by handling the selling process yourself. This is ill advised and it is neither time nor cost efficient. Find the best business broker in your industry or region and list your business with them. Additionally, retain the best attorney you can afford. This attorney would handle all the legal documentation for the business sale, this includes writing of contracts for the sale agreement between you, the seller, and the buyer of your business.
DO Determine your Business Valuation
Good real estate agents will tell you that the right selling price makes for a faster and better sale of a property. The same applies to the sale of businesses. It is important that you determine the right valuation of your business before you list it for sale. The business broker and attorney, along with your accountant, will help you determine your business valuation and pricing strategy.
Phase IV – Transaction of Sale
DO Get the Majority of Purchase Price in Cash Upfront
It is a lot better and well advised to get a lower total purchase price with a larger portion in cash, payable upon closing, than a greater price paid in payments or as royalties.
In my company sale experience, I got 75% of the total price in cash up-front and then the remaining 25% was to be paid in product royalties over 10 years. While I hoped that I would get those payments, I was ready to forfeit on it if these other payments did not come.
This is because there was no way I could predict how well the buyers would manage my business after purchase. As it turned out, I was right, the royalty payments were only paid for the first two years.
DON’T Work as an Employee for the Firm after Selling
One of the worst aspects of selling my business was agreeing to ‘work’ as an on-site consultant, to help train the owners. Most business sales do require some training sessions and in my case, it did. However, working as an employee in a business you used to own is depressing. One day they (the buyers of my company) asked me to work from the back store room! Quite a demotion from my corner office! But this was not the worst part, which was watching them, the new owners of my business; screw things up and make changes for the worst. That was truly painful.
These are what I have learned in my entrepreneurship journey and this could help you achieve success in yours, both in starting up your business and eventually selling (if you decide to).
About the author: Marsha Kelly, sold her first business for more than a million dollars. Marsha shares her hard-won experiences as a successful serial entrepreneur on her Best4Businesses blog: best4businesses.com.
Marsha regularly posts business tips, ideas, and suggestions as well as product reviews for her business readers. A self-confessed serial entrepreneur, Marsha has done ‘time’ in corporate America and has learned what products and services really work well in business today.