Deciding to sell part or all of your business is a complex decision that requires careful planning. Whether you're looking to pay off debts, fund expansion, or diversify your personal assets, selling shares in your business can be a strategic move when done correctly.

Before making a decision, it's a good idea to understand the various steps required, including accurately valuing your business and navigating capital gains taxes.

Reasons to Sell Stock in Your Company

There are many valid reasons to sell all or part of a business. Selling shares in a business can generate significant cash,🌼 which can be used to pay down debts or fund investments or charitable donations. Likewise, selling part of a business can reduce the owner’s risk and allow them to diversify their personal assets.

Busi꧒ness owners may have several other reasons to sell shares. Selling shares over time can be a means of preparing for eventual succession and transferring ownership in a way that minimizes the tax shᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚock to the eventual new owners. Finally, selling shares in a business can be the end result of burnout or an unwillingness to grow the business further.

Complete vs. Partial Sale

The first step is to determine whether you are looking for a complete or partial sale. A complete sale of your small business is fairly straightforward. It more or🦩 less ends your involvement with the enterprise, unless there’s an employment or consulting contract that continues the relationship.

Business sales can be structured in a way that essentially💃 offers annuity payments, so a complete sale makes sense if the owner is looking to move on financially.

Partial sales are different. They can raise capital, incentivize employees, or start ownership transitions. Before contemplating a partia🍨l sale, consider the ramifications of how much you wish to sell. If you sell too much and become a minority investor, for example, you may no longer have the ability to control—or even influence—decisions.

Different Options for Selling

Going Public

For the large majority of business owners, 澳洲幸运5官方开奖结果体彩网:going public is not an option. Pursuing a public listing for your business is the most expensive option, and it is the most demanding in terms of legal, auditing, and disclosure requirements. Still, it is generally the best option for raising large amounts of capital and/or maximizin▨g the value of a business.

Selling to Large Private Investors 

Companies do not have to go public to attract investment dollars from institutions. It is considerably easier, faster, and cheaper to sell shares privately. While there are limits on the extent to which a company may solicit investors without filing with the 澳洲幸运5🐲官方开奖结果体彩网:Securities and E♛xchange Commission (SEC), private sales offer the same advantage of raising capital publicly without some of the downsides.

Private sales usually include 澳洲幸运5官方开奖结果体彩网:venture capital financin✃g. In venture funding, a business or business owner sells shares to venture capital investors in exchange for capital that the business needs to grow or expand. In many cases, significant share sales to large private investors also require that the company give the investors a spot on the&n🗹bsp;board of directors.

Selling to Smaller Investors

In some respects, selling shares in your private business to small private investors is both more difficult and easier than selling to large, 澳洲幸运5官方开奖结果体彩网:sophisticated investors. On the plus side, it’s easier to handpick the investors, and there areಞ often preexi💎sting relationships.

These investors are also less likely to force some of the more consequential compromises that bigger investors may demand, such as board representation or a 澳洲幸运5官方开奖结果体彩网:chief executive officer (CEO) replacement.ꦯ On the other hand, smaller investors typically h💞ave less money, and the legal process can be more complicated.

Selling to Employees

Selling shares of your business to your employees is another option to consider. Establishing an 澳洲幸运5官方开奖结果👍体彩网:employee stock ownershi🦩p plan (ESOP) increases loyalty and retention and reduces a business’ cash compensation needs—such as awards or bonuses—that would otherwise be paid in cash. These contributions 澳洲幸运5官方开奖结果体彩网:are usually tax deductible; however, selling shares to employees is not a practical option for raising capital.

Important Steps in Selling a Business

If you’re pondering an exit, here are ✨some s𒐪teps to get started.

Decide on Your Future

Begin by answering one question: How do you want to spend your time, money, and energy after you sell? Many people find this kind of soul-searching difficult and avoid it. Unfortunate🥂ly, owners who enter negotiations with a 𒅌potential buyer without a vision for the future rarely conclude the deal. Put your vision of your future life in a document, so you can refer to it when needed, and update it as necessary.

Know What Your Shareholders Want

The next question to ask is: What do your stakeholders want from your company? Stakeholders include people whose actions affect the health of the business—employees, other owners, investors, and family members. The goals of these pivotal people will shape the future of the business, and a smart bu🍒yer will want to know and agree with their objectives before concluding a deal.

Determine Your Business’s Value

Next, you need to establish a value for the business. This process may require the services of an accountant, an independent analyst, and/or a consultant. An entrepreneur grows their businesses from an idea into an organization with employees, assets, intellectual property, and a reputation, which all needs to be taken into consideratio✃n.

When you’re figuring out how much your business is worth, consider the three common valuation methods: income approach, market approach, and assets approach.

• The income approach valuation method focuses on the business's potential to generate future income. It's best used for businesses that are profitable and well-established.
• The 澳洲幸运5官方开奖结果体彩网:market approach compares the business to others that have recently been sold to arrive at a fair value. It can be useful when valuing public companies (or private companies that are considering going public) because data on these businesses is usually available.
• The 澳洲幸运5官方开奖结果体彩网:assets approach takes the value of all the business's assets to determine its fair value. You identify the value of a company’s net assets by subtracting liabilities from assets. It's generally best-used on holding companies or distressed companies that aren't worth more than their net tangible value.

If you’re considering a sale to a third party, seek the assistance of a 澳洲幸运5官方开奖结果体彩网:business broker, who will typically b💃e experienced in finding a buyer, managing paperwork, navigating tax and other laws, and closing the deal more quickly than an entrepreneur selling a business for the first time.

A broker will concentrate on the sale, allowing the owner/entrepreneur to continue to focus on running—and maintaining the value of—th🐲🎉eir business.

Once you have an idea of the 澳洲幸运5官方开奖结果体彩网:fair value of the business, solicit multiple bids (at least three if possible). If the bids differ significantl♑y from the owner’s idea of fair value, it may well be necessary to rethink the assumptions.

It’s also worth mentioning that private businesses almost always sell at discounts to 澳洲幸运5官方开奖结果体彩网:public companies, but a controlling stake is often worth a substantial premium to 澳洲幸运5官方开奖结果体彩网:noncontrolling minority investors.

Create a Marketing Strategy

It is also important to properly market a business that is to be sold. There are Internet sites that traffic iꦦn helping owne🎃rs to sell their businesses, but owners need to be prepared to create their own sales materials.

At a minimum, a well-formatted, one-page summary is critical, as is a more detailed package for serious bidders. These materials need t♑o include items such as the sales, profits, and cash flows of the business, as well as a comprehensive description of the business and its assets.

Get Your Business in Order

Finally, get the business in order before attempting to sell it. Just as a house needs a refresh before a sale, so does a business. Look for issues that will scare off potential buyers and fix them before open🐭ing the books for inspection.

Make sure that cosmetic details and repairs are attended to, prepare a thorough inventory and equipment ܫlist, and have multiple years of financial data and tax returns on hand.

Prepare For The Tax Implications

It's crucial to understand the tax implications of selling company stock or your business. For company stock, capital gains taxes are your primary concern. The tax treatment of stock options also plays a large role, as this can impact your overall tax liability.

The tax consequences are likely more complex when you're selling a business. According to the IRS, the sale of a business typically involves the sale of multiple assets rather than a single asset. Each asset is treated separately for determining gain or loss. Assets include capital assets, business property, real property, and inventory. Consult with a tax advisor to ensure compliance with the IRS.

Other Details to Remember

There are several other key details to keep in mind when considering selling part or all of your business. Remember that it takes time. An initial public offering (IPO) or venture round of financing takes months to organize, and getting a good price for a private business can take a year or more. Patience is vital; the more yo✅u rush to sell, the worse the prices you’ll see.

, CEO and president of Exit Planning Institute, a national organization that trains financial advisors on the fundamentals of selling a business, says that selling should be treated like retirement and started earඣly. “Exit planning is a process, not an event,” Snider says. “It’s a way of running your business that maxim✨izes its value and provides a means of achieving an owner’s personal and financial goals.”

As good as Snider’s advice sounds, many entrepreneurs fail to follo💦w it. Instead, they treat selling their business like an event approach🦄ed when they are ready to retire, burned out, or facing an unexpected life change. 

It’s also important to contemplate and plan for the tax and 澳洲幸运5官方开奖结果体彩网:cash flow consequences of a sale. Investors are likely to insist on more🉐-rigorous auditing or reporting. What’s more, if you sell shares with the promise of regular dividends, you need to prove the cash flow to support them. Consult with accountants and/or lawyers regarding the potential tax conseque🌠nces of a sale—both to you and the business. 

Finally, don’t forget to consider the psychological implications. Are you ready to walk away? Are you prepared to have new partners questioning your decisions? Having investors in your business makes you legally accountable to others and requires more 澳洲幸运5官方开奖结果体彩网:transparency than ꦆa sole pro✃prietor may be accustomed to. 

The Bottom Line

Selling even a small part of your business is a serious undertaking. At a minimum, make sure you are thoroughly prepared and have clear expectations for the process. 澳洲幸运5官方开奖结果体彩网:Selling shares i💜n a private 🀅business ca🅘n be a great way to raise capital, incentiviz🍌e employees, or bring new talent and ideas into a business, but it requires patience, preparedness, and a willingness to negotiate.

Incorporating tax considerations into your planning is also important. You must understand the tax implications of selling shares or selling the business outright, including capital gains taxes and other potential tax liabilities. Strategic and effective 澳洲幸运5官方开奖结果体彩网:tax planning can significantly reduce your tax liabilities, a🅘llowing you to reinvest a greater portion of your funds back into your business.

If you plan ဣto sell your company, the best way to get the maximum value is to plan well in advance. Take a hard look at what your business is worth and solve any problems that could make it sell for less than it should. Then take the proceeds and start on your ne💃xt adventure.