10 Questions to Ask Before Selling Your Business

April 2023

Selling a business is a serious business. And it is a decision that should not be taken lightly. Before putting your business on the Kentucky market, you must carefully consider all of the implications that come with it. 

Knowing what questions to ask will lead you to an informed decision and ensure you secure the best outcome. This article provides seven key questions that should be asked to evaluate if selling your business is the right choice for you.

What Will I Do After Selling?

Entrepreneurs pour their heart and soul into building their business but often don't consider what comes next after selling it. It is wise to take some time to ponder your post-sale plans before putting your company on the market.

One option is retirement; this is the perfect opportunity if you're ready to hang up your hat and relax. You can enjoy all the hard work you put in without worrying about running a company anymore. But if retirement isn't quite right for you yet, there are other options too. You may want to consider starting another business outside Kentucky or investing in a new venture that aligns with your passions and interests.

Am I Undervaluing My Business?

Being attached to something you've built and nurtured is natural. And your emotions can cloud your judgment when it comes to selling. But, as they say, business is business, and you must ensure that the deal you're getting is fair for both parties involved.

Before selling your business, you must thoroughly research Kentucky’s market conditions and valuations of similar businesses in your industry. The results will give you a fair idea of how much your company is worth and ensure that you don't undervalue it during negotiations with potential buyers. You should also consider bringing in a professional evaluator to the scene to provide an expert opinion on the actual value of your enterprise.

How Will My Employees Fare?

Two factors usually play into this question, including who the new owner is and their plans for the company. The first thing you should consider is whether or not your employees will remain with the company after it’s been sold. It’s not uncommon for new owners to want to bring in their team, which could mean layoffs or restructuring. You must account for this in negotiations if you have longstanding relationships with your employees and value their contributions.

What Are the Tax Implications?

Depending on the structure of the sale and the type of business entity, there may be different tax consequences, such as capital gains taxes. Besides, if certain assets are sold as part of the business transaction, Internal Revenue Service may collect separate taxes through its Depreciation Recapture policy.

Another important consideration is whether or not you qualify for any tax breaks or exemptions when selling your business. For example, Small Business Stock Exemption (Section 1202) allows eligible taxpayers to exclude gain from selling qualified small business stock. There are also opportunities for deferring taxes through like-kind exchanges.

Working with a qualified accountant or tax professional can help ensure you use the tax exemptions mentioned above (and hopefully more such) before making any decisions about selling your business. Also, it's essential to carefully weigh these factors alongside other considerations, such as valuation and market conditions.

How Long Will The Process Take?

One of the most pressing questions that haunt sellers is, "How long will the process take?". Unfortunately, there's no one-size-fits-all answer to this question, as the timeline for a successful sale can vary greatly depending on many factors. 

A simple example would be that local businesses in high demand (think of a popular restaurant or a market-leading software company) with a solid financial track record may sell more quickly than those struggling or operating in less desirable industries (think of appliance repair services, for example).

Other factors affecting the time it takes to sell a business include whether you're working with a broker, how prepared you are to provide necessary documentation and information, and how clean your records are. As a thumb rule, you should expect the process to take at least several months from start to finish.

If you're hoping for a faster sale or need quick cash due to unforeseen circumstances like illness or divorce, consider selling directly to an investor instead of waiting for a traditional buyer.

Whom Should I Hire to Help?

If you're looking for someone to handle the financial aspects of the sale, a business broker may be a good choice. They can help determine the value of your business, find potential buyers, and negotiate deals on your behalf. Alternatively, if legal matters are a concern, consider hiring an attorney with experience in mergers and acquisitions. You may also want to bring in experts in areas such as tax planning or marketing strategy to ensure that all bases are covered.

How Would the Sale Impact My Relationships?

Selling a business is not just about the money, but it also affects your reputation and relationships. Before deciding to sell, ask yourself how it will impact your customers, suppliers, employees, and other stakeholders. 

Consider how selling may affect your relationships with family members or friends who have supported you throughout your business journey. Will they feel left out or resentful if you sell without consulting them? If chances are high, communicating clearly and transparently with all parties is essential to maintain trust and respect.