Many entrepreneurs launch their companies with an eye toward eventually selling them. But preparing a business for an acquisition is not as simple as making the decision to sell.

The process can be complex and take several years, depending on objectives and the state of the business, which can leave the founders or owners unsure of where to begin.

Regardless of company or industry, there are several steps entrepreneurs and business owners who are exploring a sale of their company can take that will allow them to create a strategic plan of action for successfully selling their business.

Step 1: Reflect on the why. Before setting anything in motion, it’s critical first to look inwardly and reflect on the reasons behind wanting to sell.

Every entrepreneur occasionally fantasizes about selling out and retiring to a beach somewhere, leaving behind the long days and sometimes even longer nights building their legacies. But it’s highly unlikely that’s the true reason behind pursuing a sale.

Some entrepreneurs pursue an acquisition because they feel overwhelmed. Others want to relinquish responsibilities and become an employee of a larger organization.

Regardless of the reason, entrepreneurs considering a sale of their company must take time to deeply reflect on the reasons they want to sell. Knowing and understanding the why will determine how they navigate the rest of the process.

Step 2: Recruit a team. Selling a business is a multifaceted process that requires a highly qualified team of experts. Entrepreneurs will want to recruit a team of trusted lawyers, accountants, investment bankers and other professionals.

With extensive familiarity with the entire process, these are the individuals who will begin assessing the state of the business, perform preliminary due diligence, research potential buyers and more.

Step 3: Get finances and records in order. Perhaps the most critical step in preparing a business to sell is ensuring company records are in tip-top shape.

These are the documents that investment bankers and business brokers will use to price the company and determine how much they can list it for. 

Potential buyers also will rely on financial statements and company records to determine profitability and potential as they decide whether they wish to pursue an acquisition or not.

If records and financials are in poor shape, it can cause numerous headaches and setbacks that could include a lower-than-warranted price, delaying the sale or possibly derail the process altogether.

Step 4: Simplify and streamline the business. Profitability is always critical. But when a sale is on the horizon, its importance skyrockets. Potential buyers will want to know the business is lucrative and that it operates smoothly. This is the point in the process where entrepreneurs should focus on shedding any excess and unnecessary products or processes.

Are there underperforming SKUs or services? It’s time to eliminate those and focus on profitable ones. What about key people? Is the business staffed with individuals who can run the organization without help from the founder or owner?

A streamlined, profitable company is much more likely to attract interest from buyers and command a higher sale price. 

Step 5: Develop a smart tax strategy. Once the core business clean-up effort has taken place, business owners should work to develop a smart tax strategy that will minimize the amount of taxes owed at the time of sale. This is particularly important when it comes to structuring the deal, as both buyer and seller will want to limit their respective tax liabilities.

Before reaching that stage, however, founders should discuss available tax scenarios and options with their business sale teams to set themselves up for success and determine their preferred approach. There are certain tax-saving tactics, such as setting up trusts or nonprofits, that only can be done before the sale closes, making pre-planning for taxes essential to the process.

Step 6: Be patient. Selling a business is a marathon, not a sprint. Entrepreneurs should prepare to practice their patience as they work to ready their companies for an acquisition.

A good rule of thumb is to anticipate a minimum of six months to sell a business. However, depending on unique circumstances and other factors, that timeline could stretch out to two to three years, or even longer.

Regardless of how long it takes, entrepreneurs need to take the time to develop and execute a strategic plan that achieves the objectives they set out for the sale. The ultimate goal is to facilitate a sale that will be successful and set them up for their next chapter.  

Don’t Neglect Tax Strategy

Taxes can impact the business sale transaction as well as the proceeds from the sale itself. It’s important to understand how federal and state taxes will apply, as well as other potential liabilities, such as estate taxes. The structure of the business, the sale and its terms all factor into tax impact. It’s important that business owners not neglect tax strategy when planning a business acquisition.

Elizabeth Hale, CPA, transforms growth-minded companies and demystifies complex tax strategies as CEO of eeCPA. For more than 30 years, she has helped entrepreneurs, investors, family offices and commercial real estate developers pinpoint new and creative avenues for growth while mitigating risk.  

Did You Know: Generally, a small business is worth anywhere from 25% to 300% of its annual sales. The median sale price of a small business sold in 2022 was $315,000, according to BizBuySell, and the median revenue of sold businesses was $650,000.