Key Highlights
- Preparing for Selling My Business or Selling My Corporation:
Begin gathering your financial records so they can be produced efficiently. Optimize operations to the extent possible. Discuss with your CPA whether your expenses are categorized in a way that maximizes the value of your corporation. - Understanding the California Market:
A discussion of industry trends for selling a corporation in 2025. - Timing Isn’t Everything:
The best time to sell your business is when you’re ready personally and your business is steady or growing; you cannot time the market.
Introduction to Selling Your Business
Preparation is key to selling a corporation when first going down the path of contemplating the sale of your business.
This article will discuss:
- The financial records that you need to prepare and the conversations you should have with your CPA or financial advisor in advance of the sale;
- The trends for selling your California business
- What to consider as far as timing when thinking “how to sell my business.”
About Us
Pacific Business Sales is an Orange County business broker that performs business sales for corporations throughout the state of California. We are here to walk you through each of the points outlined herein so you can take the next steps in the sale of your California business with confidence.
Key Steps for a Selling Corporation
Preparation is key to the successful sale of your business with a California business broker. Prior to the sale of your business, you will need to gather necessary financial information and make sure that your business can provide financial reporting on a monthly basis to your business broker. Also, you should have conversations with your CPA regarding the preservation of earnings and avenues of tax deferral post-sale.
Necessary Financial Documents to Gather
As a selling corporation, it is very important to have the right financial documents ready. This helps the business broker value your business and will eventually make the due diligence and escrow process go smoothly.
Start with at least three years of tax returns. These papers give potential buyers a full look at your corporation’s financial history.
Then, gather clear income statements and balance sheets for the last three years and YTD for the last fully reconciled month.
Lastly, gather any contracts, leases, and legal agreements related to your corporation. This could include vendor agreements, customer contracts, and property leases.
Critical Discussions to Have with your CPA and Financial Advisor
Prior to selling your corporation you should review with your CPA and business broker whether there are any opportunities to increase your earnings. If you are close to filing your taxes, there may be some personal expenses that are run through the businesses that can be recategorized to capture them as an add back and increase earnings. It is important to remember, for every dollar you can add back to discretionary earnings you can estimate that in most industries it will generate $3 in value.
Additionally, as a selling corporation, you should talk with your CPA and/or financial advisor about whether there are any tax deferral strategies that are suitable to your cash needs and goals post-closing. Depending on your circumstances, there may be certain trust-based strategies to defer taxes on the sale so that taxes are paid at a lower rate over a longer period rather than a higher rate in the year of closing. Many of these strategies must be prepared prior to signing a purchase agreement or prior to closing so it is key to have these conversations early.
Pacific Business Sales has financial advisor contacts it can connect you with to discuss what options may be available to you based on your present financial situation and the expected sale price of your business.
Understanding the California Market Value for Selling a Corporation
California’s economic scale supports a diverse business scene. Reputable sources and companies that sell corporations are projecting 2025 to have positive momentum for business sales with lower and leveling inflation, stabilizing interest rates, and lower middle market earnings growth.
Private firms and companies that sell businesses are projecting a surge in both exit and deal activity in the private markets. This largely is credited to the Covid-Era instability being far into the rear-view mirror, expected tax rate stability, and the expectation of political stability and easing of regulations.
The above factors will support strong opportunities for a selling corporation as these factors will create stability in the selling corporation while their business is on the market and dissuade many fears of potential buyers.
When is the Right Time to Sell My Business
Many sellers try to “time the market” for the sale of their business. These sellers grasp on to economic reports and trends in the broader economy as a determinant of when it is time to sell.
What we have found is that broader economic trends do not always directly translate down to business sales potential of small and lower market businesses. Especially in California business sales, businesses of these sizes still tend to thrive even in times of uncertainty and therefore would not prevent the sale of a business. The historical success of your business over the last three years, together with a showing of continued success in the present year, is the larger determinant of the ability to sell and the business value.
Overall, the best time to sell your business is when you are showing steady or growing earnings for 2-3 years as opposed to looking to the broader economy as a determinant of “when is the best time to sell my business?”.
Conclusion
Selling your company takes careful planning. You need to make sure you have the financial records available and take the time to discuss the sale with your CPA and/or financial planner. To get the best price for your company in California, careful planning and execution are very important. Pacific Business Sales will work with you, your CPA, and your financial advisor to ensure that you achieve the most desirable outcome for the sale of your business.
Frequently Asked Questions
The top factors that affect business valuation are as follows: 1) consistency of revenue and earnings; 2) customer concentration (maintaining a diverse customer bases provides for a stronger valuation); 3) ensuring that the continued success of the business is not directly tied to the owner’s personal input or relationships (i.e. a buyer can step in without a high risk of declining revenue/earnings).
Pacific Business Sales, an Orange County business broker, can review these risks for you while it performs a free market valuation. *
Your Business Broker’s top priority for selling your business is confidentiality. Prior to any buyer receiving information a potential buyer should sign a nondisclosure agreement and provide general information to the broker to verify relevant information to determine if they’re a competitor, whether they have the financial capacity to purchase the business, whether they have the basic qualifications/licensure to operate the business. Any buyer who does not provide this information or does not meet the basic requirements financially or operationally should not be provided any information about your business beyond the initial advertisement.
California business brokers or other companies that sell businesses act as an intermediary between buyers and sellers for businesses. Prior to listing your business, the business broker will provide you a market value analysis (listing value) based upon a review of your current financials. Following the signing of a representation agreement, the business broker will market your business, conduct preliminary interviews of buyers, organize buyer introductions, conduct negotiations, and eventually coordinate the closing of the sale between the buyer, any lenders, and escrow.
It is important to note that a business broker is not an attorney, CPA, or financial advisor and therefore you should include your attorney, CPA, and financial advisors throughout the sale or purchase of a business.
Following the acceptance of a letter of intent or a purchase agreement, buyers and sellers exchange information; this process is called due diligence. The goal of due diligence is for both buyer and seller to assess the viability of the transaction as well as confirm all representations made that formed the basis of the offer.
The buyer will request information to verify the historical financials of the business and for purposes of confirming the value. The buyer will also request information concerning regulatory and legal concerns that may impact the ongoing operation of the company as well as any past liabilities.
The seller will request information from the buyer concerning their financial capacity to purchase the business and financial history. They may request information concerning proof of funds, lending information, credit history, and corporate information (if the buyer is a corporation).
California’s economic scale supports a diverse business scene. Reputable sources and companies that sell corporations are projecting 2025 to have positive momentum for business sales with lower and leveling inflation, stabilizing interest rates, and lower middle market earnings growth.
Private firms and companies that sell businesses are projecting a surge in both exit and deal activity in the private markets. This largely is credited to the Covid-Era instability being far into the rear-view mirror, expected tax rate stability, and the expectation of political stability and easing of regulations.
The above factors will support strong opportunities for a selling corporation as these factors will create stability in the selling corporation while their business is on the market and dissuade many fears of potential buyers.
* Pacific Business Sales reserves the right to decline to provide a free market valuation at its sole discretion
