There comes a time in a business owner’s tenure when it’s time to say goodbye. The reasons behind the decision can vary – for some people, walking away comes after years of preparation for retirement. For others, it’s the product of factors outside of their control. Whatever the case, it’s never easy and requires some pivotal decisions to be made. One of the most important is what will happen to the business post-departure. Should it be sold? Closed altogether? Or passed down to the next generation?
In this article, we’ll talk all about the processes behind selling and closing a business, what they involve, and how you can decide which route is right for you.
Selling Your Business – What’s Involved
Selling is a common choice among owners ready to cash in on their years of investment into a business. It comes with some obvious benefits, like the potential to earn a large return or at least recoup some of the capital you put into it.
However, there are also drawbacks – particularly in terms of the complexity involved when it comes to finding a buyer and negotiating a sale. The process usually involves several steps, including:
The Decision Itself
The first part of selling a business is making the decision to do so in the first place. While some people are the sole owners of their company, others have partners, co-founders, and families to consult before making the jump. It’s important to carefully think the choice through before moving on, as selling a business is no small matter.
Get a Business Valuation
This next step is one of the most important to the rest of the process. It involves getting an idea of what your business is worth through a valuation.
There are a number of different ways to go about getting a business valuation. Some owners choose to do so themselves with the use of online resources and calculators. Others take a more serious approach and hire a professional appraisal service. In most cases, this latter option is the best way to go. It ensures that you’re getting a qualified, well-researched opinion on your company’s value and that you’re getting every dollar possible. A confidential business valuation with a Business Broker with 1-800-Biz-Broker can help.
Finding a Buyer for Your Business
Once you have an idea of your business’s value, it’s time to start looking for potential buyers. The best way to do this is typically through the use of a business broker. These are experienced professionals with connections throughout the industry and an understanding of the current markets. They can help you find the right buyer quickly, and even negotiate on your behalf for a higher price. Some brokers also specialize in specific industries or locations, so it’s worth researching different options to ensure you have the right match.
Negotiating the Deal
After you have a few interested buyers, the negotiation process begins. This is where the value of your business’s worth comes into play. As the seller, you should be aiming to get the highest price possible. However, it’s important to remain realistic and be prepared to compromise if necessary. Your broker can help guide you through the process and ensure that you get a fair deal. They might also act as a mediator between you and the buyer to ensure that both parties are satisfied.
Closing the Sale
Closing the deal is the last, monumental step of the business sale process. It involves – you guessed it – finalizing a deal and officially signing off on an agreement. But it’s not necessarily that straightforward; there are a number of specifics that need to be taken care of at this stage. This includes paperwork, legal documents, and contracts. A lawyer should be consulted to ensure that everything is done correctly and on the up-and-up.
Once all the details are in place, it’s just a matter of signing on the dotted line and exchanging payment for ownership.
Closing a Business – What’s Involved
Closing up shop is another option owners have when deciding to leave, but is slightly less common. In most cases, people are personally invested in what they’ve built and see pulling the plug completely a waste. Some businesses, however, serve a general purpose and then dissolve after reaching a certain goal or stage. Other times, an owner may just want or need to cut their losses and move on.
Regardless of the reason, closing a business can be a complicated process that requires careful consideration. Read these steps to get an idea of what you can expect when it comes time to shut down:
The Decision Itself
Like selling, the decision to close your business should not be taken lightly whatsoever. As the owner, you must be sure that it is the right move to make before taking any action. This means carefully weighing the pros and cons of all other options and comparing them to closure. It’s also important to discuss the decision with key stakeholders – not everyone may be on board with the idea.
If closing seems to be the best course of action, you’ll need to sign an agreement with partners stating the terms of the closure.
Notifying Customers & Vendors
Closing a business will have a ripple effect, so it’s important to notify customers and vendors of your plans. They should be informed as soon as possible so they can begin seeking out alternative options. You should also provide them with contact information for questions or concerns, and send out any refunds they may be owed.
In addition to customers and vendors, your business’ employees should be among the first to know after the decision to close has been made. Not only out of respect and courtesy, but also for the sake of compliance. Several federal labor laws, such as the Department of Labor’s Worker Adjustment and Retraining Notification Act (WARN), require employers to take specific actions prior to shutdown.
Filing Dissolution Documents
Closing a business involves a lot more than simply switching off a set of lights and closing the door. It’s a formal process that requires the filing of dissolution documents with the state. Failure to do so will result in continued taxes and obligations, so be sure to look up specific requirements for your location. The websites of the Secretary of State, Business Bureau, or Business Agency can be a great place to start.
With the doors set to shut for good, your business will no longer need any of the connections or assets that have sustained it this far. This means it’s time to cancel everything – from registrations, permits, and licenses to business names.
Resolving Financial Obligations
Before a business can be declared officially defunct, all its financial obligations must be taken care of. This includes filing the final return for income tax and sales tax, canceling the Employer Identification Number and notifying federal and state tax agencies. The IRS has a checklist to help you through this process.
Finally, it’s important to keep in mind that some records should be maintained even after a business has been closed. You may be legally required to keep tax and employment records for a certain period of time, usually from three to seven years. Make sure to check guidelines and regulations specific to your state or business type.
Should I Close or Sell My Business?
Closing a business can be an emotionally and financially difficult process for any owner. Before making the decision to shut down, it’s important to explore all other options. Selling a business can be an effective way to avoid closure, and also recoup some of the investment that went into it.
Let’s weigh some pros and cons.
Pros of Closing a Business
+ Simpler than selling a business
+ Allows for closure on own terms
+ Complete control over decision-making
+ Process is relatively straightforward
Cons of Closing a Business
– Loss of income and investment
– Loss of jobs or opportunities
– Potential legal consequences
– Negative impact on reputation
Pros of Selling a Business
+ Potentially recoup investment
+ Pass on legacy of business
+ Offers an opportunity to move on
+ Supports a new venture
Cons of Selling a Business
– No guarantee of sale
– Loss of control over decision-making
– Unknowns of the sale process
– Investment of time and energy
Ultimately, the decision to close or sell your business should be based on a thorough evaluation of your individual situation. The most important thing is to make sure that you are informed, and prepared for the outcome.
In Proverbial Closing
Walking away from a business can be bittersweet, as you’re bringing something to an end that once filled you with such enthusiasm. But by taking the considerations outlined in this article, you can ensure the transition is as smooth and organized as possible. Finally, it never hurts to spend 10 minutes and get the viewpoint of a business professional that sells businesses, contact a Business Broker at 1-800-Biz-Broker for a confidential and free business valuation.