COAST RIVER BUSINESS JOURNAL
BUSINESS COMMENT
APRIL 2022 • 13
Preparing a business for sale or transition
By Jessica Newhall
Clatsop Community College
Small Business Development Center
Succession planning and exit planning are
important business topics that describe the process
of preparing your business for a transition from
one owner to the next, either through the transfer
to a family member, another individual or a sale to
a third party.
This is a hot topic right now, as the “silver tsu-
nami” eff ect of Baby Boomers hits the small busi-
ness community and new potential buyers emerge
as the “G reat R esignation ” means many working
age individuals are moving away from traditional
employment and considering business ownership.
If you are a business owner, it is likely that
apart from your home, your business is probably
one of your largest assets. So, wouldn’t you want to
maximize that asset for the greatest future return?
Educating yourself on the process of building
value in your business and positioning it for future
sale is a great place to start. Here are some things
to consider:
Finding or developing a future buyer: If
you are not in a position where you have some-
one already identifi ed to take on your business, you
will need to develop a prospect for the sale. This
can be developing an existing employee, identifying
someone within your industry who might be a good
buyer, such as a sales representative or employee of
another fi rm, or fi nding a new buyer through adver-
tising or a business broker.
Jessica Newhall
Selling a healthy business: Unless it is a strate-
gic sale or acquisition of physical assets, it is likely
that your business will be harder to sell if it is in a
state of declining revenues. So, if you are planning
a sale, make sure that you are prepared to put some
extra eff ort in and have enough time to right the
ship to the point where you can demonstrate enough
consecutive quarters of positive performance on the
books to give a prospective buyer confi dence that
they are buying a viable business.
Timing: It is never too early to start planning
your exit or succession plan. Unfortunately, many
business owners leave this until the very end, when
they are burnt out and just ready to move on and
are left with no choice other than the dreaded “fi re
sale” or to close the doors for good without transi-
tioning to a new owner. There isn’t a fi rm rule of
thumb on how much time it can take to plan for an
exit or transition as it depends on the industry, the
individual situation or how healthy the business
is at the time of potential transition. Many pro-
spective business owners will ask for two or three
years of fi nancial statements so you will want to
give yourself enough time to strengthen your busi-
ness if needed. Same goes if you need to develop a
future buyer — don’t wait until your lease is about
to expire to begin this process!
Business value: What is your business worth?
Of course, this depends on several factors ranging
from owner’s discretionary income, assets owned
by the business and the type of acquisition that
will take place. Whatever valuation methodology
you use, a business is only worth what someone
is willing to pay for it. You can get a professional
valuation or work with your Small Business Devel-
opment Center advisor to get an idea of what your
business’s current value range might be.
Financial records: Prospective buyers will
likely ask to see records that will validate the price
you are asking for your business. To get the maxi-
mum value from your business, be prepared to show
two to three years of fi nancial statements (profi t and
loss and balance sheet) as well as potentially need-
ing to provide tax returns and point of sale data.
Declaring all income: Hiding cash from Uncle
Sam might save you some tax dollars but it could
cost you when it comes time to sell your business
(not to mention it is illegal ). “Trust me” doesn’t usu-
IF YOU ARE A BUSINESS OWNER, IT IS LIKELY THAT
APART FROM YOUR HOME, YOUR BUSINESS IS PROBABLY
ONE OF YOUR LARGEST ASSETS. SO, WOULDN’T YOU
WANT TO MAXIMIZE THAT ASSET FOR THE GREATEST
FUTURE RETURN? EDUCATING YOURSELF ON THE PROCESS
OF BUILDING VALUE IN YOUR BUSINESS AND POSITIONING
IT FOR FUTURE SALE IS A GREAT PLACE TO START.
ally go far in business sale transactions and buyers
will likely only pay you for the business income you
have reported.
Consult experts: Business sale transactions can
take place without the help of professional advisors,
but this is not recommended. You should budget and
plan for bringing some experts into your sales pro-
cess including your fi nancial advisor (who can tell
you what you need to get out of your business for
retirement), legal counsel to help you navigate the
contract and transfer process, and potentially a busi-
ness transition expert depending on the complexity
of your transition.
These are just a few of the considerations that
go into transitioning and selling your business. If
you would like more information, the Clatsop Com-
munity College Small Business Development Cen-
ter will host a free Zoom workshop with business
succession expert Arnie Hendricks on succession
and exit planning on April 21 (will be available for
on-demand viewing after). Visit www.oregonsbdc.
org/clatsop for more information.
Jessica Newhall is the associate director of the
Clatsop Community College Small Business Devel-
opment Center. She can be reached at jnewhall@
clatsopcc.edu.
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