6 things to do before selling your startup

Selling your business is a big step and one many business owners consider from time to time. Cashing in on the labours of your hard work and getting a cash pay-out can allow you to retire, start a new business or just to make money.

Understanding how best to go about the process is important and these tips should help:

1. Begin planning as soon as possible

You can never start the planning process for selling your business too early. Not only do you need to develop a solid understanding of how the process of transferring your business to another party works, but you also need to prepare yourself for any emotional issues that may arise when selling your business. This can help ensure that you are ready to take action and that you can keep your wits about you when it comes time to make the sale.

2. Have a plan in place for what you will do next

Oftentimes, business owners back out of deals simply for the fact that they don’t know what they will do next. There can be a lot of fear of the unknown associated with selling a business. Having a solid plan in place helps eliminate this fear, improving the chances of going through with the sale.

Read more: 10 defining moments that shaped SA’s startup ecosystem in 2015

Think about what you would find most fulfilling as you move on with your life. For some, it may be starting a different business. For others, it may be something like devoting themselves to doing charity work or teaching others. By choosing a new adventure that you are passionate about, you will be far more likely to go through with the sale.

3. Know what your business is worth

Because you have invested so much time and energy into building your business, it is only natural to assign a lot of value to it. Unfortunately, however, that value may be higher than the market is willing to bear. You have to be realistic about how much your company is truly worth. Do your research and have a figure in mind that you can quote to interested buyers. Be sure that this price is not only fair to you but that it also accurately represents the true value of the business. Also, be prepared to answer questions for buyers with as much detail as possible. This can help eliminate any fears they may have about going through with the sale.

4. Don’t get caught off guard

The last thing you want is to be surprised at the last minute by an unexpected issue. Always be open and honest with potential buyers about any negative aspects of your business. For instance, if you are having trouble with a customer, be sure to mention it to the buyer so that they are aware of the issue.

Read more: Survey: South Africa’s Venture Capital industry is now worth a massive R2bn

Even if you are confident that the relationship can be mended, it is important to make sure that the buyer is aware of the rift. Being upfront about this during the pre-sale period can help avoid problems when it comes time for the buyer to do their due diligence. If a problem is discovered by the buyer during this period that you failed to disclose, it could result in the sale falling through at the last minute.

5. Don’t get offended by due diligence

It can be easy to take due diligence personally since it can feel like a personal attack. You shouldn’t view it this way, however. Instead, try to see it for what it is — a normal part of doing business. It is normal and expected for buyers to be filled with questions about your business, as well as to want verification of what you tell them. Although this can sometimes feel like a personal attack, it is necessary for the sale to go through. Always prepare yourself ahead of time for any questions that you may find particularly challenging to answer. That way you will be less likely to respond emotionally when the buyer brings them up.

6. Set up and Escrow

If you’re selling your business, maybe you should consider an escrow agent. The escrow agent is an officer who accepts the money into an escrow account on behalf of previous owner from the buyer and will then disburse the funds at times stated in the contract. It’s a safer way to sell and buy a business.

Even if you aren’t currently planning to sell your business, it pays to prepare yourself in case something happens that requires a quick sale. For instance, if you or a loved one gets sick or if your finances take a turn for the worse, you may find yourself having to sell in a hurry. The better job you do of preparing yourself now, the easier it will be to make a sale whenever the need may arise.

Image by Kevin Dooley via Flickr

Tilly Jayne


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