Know When and How to Sell Your Business

Ron Burgundy pretends to know when and how to sell his business. Don't be like Ron Burgundy...

John West is a serial entrepreneur in the truest sense. Prior to his latest startup, he had already built and sold two companies in very different industries. And he says that while developing an idea to start a business takes time, selling that same business is just as complicated.

West started building Whistle Sports Network in 2008 after selling his second company, Silver Oak. After the Silver Oak sale, he decided to spend time with his children. As his children started watching sports, he started to notice that the media coverage, content and delivery weren’t geared toward younger generations. West started to research the media industry and decided to launch a linear cable network. Today, Whistle Sports has 315 channels and 115 million aggregate fans and followers.

During a sale, business owners have key financial and emotional considerations, like figuring out what to do once they don’t own that business and developing a personal financial plan. While the lump sum from a sale can be life-changing money, it’s secondary to the work as an entrepreneur, according to West.

“I’ve never believed you should start a company to sell it,” says West. “You start a company to solve a problem and do something cool. You sell it based on how the markets are doing and how the industry is doing -- you can’t plan this.”

Nadia Allaudin, senior vice president of Wealth Management at Merrill Lynch Global Wealth Management in Century City, agrees and says that "there needs to be an understanding for the impetus for the sale or walking away. There needs to be a lot of conversations about how you’re going to handle this.”

Once a business owner receives an offer, whether expected or not, that’s when the planning begins.

Buyers can be anywhere.

West started his first company, Enstrat, an environmental consulting firm, out of college in 1989. Soon after graduating Harvard Business School, he sold the firm to a member of his managerial team in 1996 because he wanted to make a change.

“The business was profitable, so we were able to finance the sale through debt,” says West.

Many companies are sold to key employees since these people know and understand the business and have a passion for it.

“Entrepreneurs should think about that when they’re hiring people and consider grooming employees, since they may be the people to take over your business in a few years,” says Tim Sabol, private wealth advisor at Ameriprise Financial in Philadelphia.

In 1999, West went on to build Silver Oak, a company that helped state governments save money. His company created a niche and was earning about $23 million in revenues. After eight years, he accepted an offer from CGI in 2005. Three years later, he started Whistle Sports. Deals can take up to a year or two to close, which can be used to plan for what’s next.

“Most of the time, how long [a sale] takes hinges on who the buyer is -- if it’s an internal candidate or a competitor down the street -- and it always seems to take longer than people expect,” says Sabol.

Prepare for the exit.

Leaving a business requires understanding the business's value and worth. You may need multiple valuations depending on the buyer, nature of the business and the deal. Having clear books and records helps a buyer with due diligence, and you want to have years of financials readily available so you’re prepared for that unexpected offer.

“There are a lot of different business valuations companies, and you want to find one that’s reputable and specific to your industry, so they know your business and the cash flow,” says La