Research from the Exit Planning Institute reveals that over 90% of entrepreneurs exit their first business within ten years of starting. Why? First, it’s an excellent opportunity to cash in on your hard work and secure a significant nest egg. It also allows them to reinvent themselves and move towards future endeavors.
Selling your first business is an absolute roller coaster — but don’t let it be an emotional decision. Sometimes, you must trade in something close to your heart to advance toward newer adventures. It can be both exhilarating and nerve-wracking but also open doors for fresh opportunities.
Whether it’s because you’re embarking on a new journey, building financial wealth, or want to cash out and enjoy the fruits of your hard work, selling your first business can be a monumental decision. But don’t worry; this step-by-step guide will walk you through everything you need to consider before taking the plunge.
The pros & cons of taking the plunge
The pros:
1. Financial windfall
Pro #1: The most alluring boon of selling your first business is the immediate and substantial financial reward. It all depends on your business’s valuation at the time. A well-run business can quickly secure you a cushy nest egg or even the chance to gain complete financial independence.
Pro #2: You can use the money to invest further in new ventures, build your retirement fund, pay off your debts, or bask in the glory of your labor.
2. Reduced risk
Pro #1: Entrepreneurship is an absolute roller coaster ride. It comes with fundamental risks married to the job, and selling can bring a welcome relief from the daily stress and financial uncertainty related to this line of work.
Pro #2: By selling, a new owner takes over as a risk taker, and you free yourself from ownership responsibilities.
3. Fresh start
Pro #1: Selling your first business can also mean an opportunity for a fresh start. Consider exploring new interests and industries, or even take a break before deciding what the next chapter in your life looks like.
Pro #2: You can pivot your life and become a new individual. Learn from past mistakes, and use these lessons to build your future successes.
4. Strategic decision
Pro #1: Selling can be a critical growth move. If you’ve received an offer you can’t refuse or the market conditions look good, you should cash out and capitalize on your business’s value.
The cons:
1. Emotional attachment
Con #1: Most entrepreneurs’ first business is like their firstborn. Letting that baby go, after building it from the ground up, can be emotionally draining for some.
Con #2: If you’ve defined your identity as a business owner, letting go of your work can feel like losing that identity.
2. Uncertain future
Con #1: Selling means leaving the routine of running a business behind and treading unknown waters. There’s no telling what the future will bring, and the uncertainty can feel overwhelming.
3. Loss of control
Con #1: When you sell your business, you hand the baton to a new leader. This new leader brings new visions and decisions that may not sit well with you.
Con #2: If you’ve enjoyed the freedom of being your boss, this changing power dynamic could be distressing to you.
4. Tax implications
Con #1: Significant tax liabilities can counterbalance the benefits of selling your business. Capital gains taxes can sting your profits, so make sure you have a tax-saving plan before selling.
Con #2: Depending on the structure of the sale, you might have ongoing tax obligations or restrictions on how you can spend your financial gains.
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A fun yet factual guide to selling your first business
Now that you know the pros and cons of parting with your firstborn, let’s walk you through how to sell your business quickly. This step-by-step guide will ensure you come out of the race financially, winning with a victorious smile.
Step 1: Know your ‘why’
Before hammering the ‘For Sale’ sign, consider why you want to sell your business.
Are you seeking a fresh challenge? Is it time to enjoy your well-deserved reward? Understanding your ‘why’ will help you make a practical decision aligning with your goals.
Step 2: Get your house in order
Buyers will run for the hills if they see a messy business. So, ensure your finances are in order. Tidy up your records, from profit and loss statements to tax returns, and be ready to face the jury as questions will be asked.
Step 3: The valuation game
Determine the value of your baby.
Your worth isn’t judged just by the dollars in the bank but also by your customer base, assets, and growth potential. Always consult a professional because what you think your business is worth may differ from what the market thinks.
Step 4: Assemble your right team
The right team can make or break the deal. You’ll need an experienced lawyer, an accountant, and a business broker to guide you through the sale. They’ll be your sidekicks, helping you negotiate a higher selling price and protecting your interests like superheroes.
Step 5: Seal your lips
Don’t spill the beans before the big reveal. Unnecessary gossip can make your business go haywire and overwhelm employees, customers, and suppliers. It’s like planning a surprise party — keep it under wraps until you’re ready!
Step 6: Market like a rockstar
Your sales memorandum is like your business’s dating profile. The strengths, growth potential, and unique selling points should all be front and center. Potential buyers should fall in love with the idea of owning your business.
Step 7: Cast a wide net
To attract the bees to your beehive, cast a wide net. Consider strategic buyers (those with the skills to steer your ship) and financial buyers (those who can fund it to take it to greater heights). Ask the right questions upfront to better your chances of landing a higher selling price.
Step 8: Get ready to dance
Once offers start rolling in, it’s time to dance the negotiation waltz. While it can be daunting, this is where the real magic happens. Remember, it’s not just about the price but also what’s best for your business. An open-minded approach can help you attain a win-win solution.
Step 9: Due diligence
Buyers will dive into the nitty gritty of your business with a magnifying glass. Be prepared to be thoroughly investigated. Stay transparent to ensure a smooth process.
Step 10: Close the deal
Once you’ve aced the dance and the buyer is ready, it’s time to seal the deal. Your attorney and accountant can help you check, double-check, and triple-check everything for the handover.
(BONUS!) Step 11: Celebrate (and plan your next adventure)
Congratulations, you’ve sold your business! Take a moment, pour yourself a drink, and reflect on your achievements. A milestone moment, indeed.
Selling your first business isn’t about saying goodbye; it’s about the excitement and welcoming of new challenges and opportunities. This step-by-step guide will help you ride the rollercoaster and come out smiling. You’re in for a fantastic adventure. Cheers to your success!
Want to get more for your startup? Escalon can help ensure that your accounting, financial records and taxes are accurately done and that they communicate the full value of your business to potential buyers. Talk to an expert today.
This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.
