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Your business’s value will be dependent not just on what you sell or provide but also all the intellectual property and your customer base as well. There are many steps involved and so following a plan and a list of what to do is a priority. If you stick to the list you will arrive confident, prepared and encouraged.
- Put Together A Good Team
- Gather All Necessary Documents
- Value Your Business
- Plan Your Exit
- List Your Business For Sale
- Find Buyers
- Be Prepared To Wait
- Negotiate All Offers
- Receive Payment Upfront
9 Steps To Successfully Selling A Small Business
Every business is unique and that makes selling them a unique experience too. It can be if you have a simple business, but you still want to do your due diligence and make sure you’re getting paid what the business is truly worth.
1. Put together a good team
You shouldn’t try to sell your business on your own. Between taxes, paperwork, listing your business, and finding a buyer, there’s a lot you’d need to know in order to go it alone. You’ll want to build a professional team you’re comfortable with. Consider the following professionals:
- Accountant. If you’re a larger business, you’ll likely already have an accountant. Inform them that you’re looking to sell and they can start preparing the right financial paperwork.
- Lawyer. There are lawyers for everything, including business sales. Working with a lawyer can help you ensure that all laws are being followed properly.
- Financial Adviser. A financial adviser will help you model your post-sale financial reality including goal planning for the free time that comes with selling your business.
- Business broker. A business broker is an expert in finding the best buyers for folks selling their businesses. Having a broker is a must, since they’ll be your number one resource on how to list and sell.
- Valuation Expert. If you use a valuation expert, you’ll be able to tell potential buyers that your price isn’t just determined by you, but by a professional who knows the business.
2. Gather all the necessary documents
If you decided to sell your business on your own, by the time you got to this step, you’d probably give up. Reason being, you’ll need a lot of paperwork in order to transfer your business to someone else. Gathering all of your documents ahead of time can save you a huge headache later on. Make sure you have the following:
- Any non-disclosure or confidentiality agreements.
- Financial statements for the life of the business and Earning and cash flow statements.
- Accounts payable and receivables.
- List of all inventory, equipment, and furnishings you’ll be including in the sale.
- Professional contacts including suppliers and distributors.
- Client or customer list.
- List of all staff with their agreements and year-to-date payroll record.
- Documents that prove the legality of your business.
- Corporate tax returns.
- Lease or ownership papers if you have a physical location.
- Business licenses and/or registrations.
- Copies of any patents, trademarks, and any other intellectual property.
- Any business plans.
- Marketing materials.
- All employee handbooks and procedure manuals.
Check with your accountant, attorney, and financial adviser to see if there’s anything else your business should be able to provide.
3. Value your business
Now we’re starting to get to the fun part. When you can put a value on your business, you’ll know how much of a potential payday you could see after the sale. This is when you’ll want to get in contact with a valuation expert who can look at all of the details of your business and help you decide how much you’d like to list it for. The value of your business will depend on a few factors, including:
- The products you sell. What you sell or produce is the biggest part of your business. The value of those items and the revenue you get from these sales will be a large factor in selling a small business.
- The brand loyalty you’ve created. Customers are the next most valuable part of your business. If you’ve built up a loyal customer base and have made your brand recognizable, buyers will be interested.
- The intellectual property you’re selling. If you’re including any patents, copyrights, or trademarks, these have value as well. See selling intellectual property for further details.
- Sales of similar businesses. Just like when selling a home, the real estate agent looks at “comps” or similar age and style homes in the neighborhood over the past few years, the value of your business will be influenced by how similar it is to others that have sold in the recent past.
4. Plan your exit
When you start thinking about selling your business, you need to have a realistic plan on what you’ll do once your last business days are upon you. After all, you’ll need to understand how selling your business, which may be the main source of your income, will affect your personal finances. When creating a business exit plan, make sure you know the following:
- How will you use your profits?
- Will you hire a financial advisor (if you don’t have one)?
- What will you do about capital gains taxes?
- What will you do the day after, when you can’t go to work?
5. List your business for sale
Whew, now it’s time to actually list your business for sale. Your broker will be the go-to source for doing this. They’ll have connections in the industry and will know where to best find buyers. You can also take a few steps on your own, though.
- Connect with your network. As a business owner, you have your own community of people you can tap into and see if there are any interested buyers.
- List on BizBuySell. This site is the #1 source for self-listed businesses. There’s no harm in using a site like this, and you can even get a very basic sense of what you might list your business for via their valuation calculator.
6. Find buyers
The idea is to have offers rolling in as soon as you sell, and if you work with the right team, that’s exactly what will happen. Unfortunately, however, not all offers will be great ones. Here are few tips when looking at buyers:
- Be very careful who you offer sensitive information to. Anyone willing to give you a serious offer on your business should also be willing to sign a non-disclosure agreement (NDA). This can ensure that none of your sensitive information gets into the wrong hands.
- Pre-qualify your buyers. Not all buyers have cold hard cash to offer when making a bid on your business, so most will get help via loans. Just like major lenders do, you should pre-qualify your buyers to ensure they can realistically get the financing they need.
7. Be prepared to wait
When you’re selling something as big as a business (even if you have a small one), both the buyer and seller need to do some due diligence to make sure the whole process doesn’t fall through. This will take some time. You’ll leave most of the due diligence process up to your broker and attorney, but this is when having all of your paperwork already in order will help.
Sill, you never know what a potential buyer will want to see before writing you a check. In general, buyers may ask for:
- Financial documents, like the ones your accountant should have already gathered.
- Legal documents like a lease or any loans.
- Proof of customer loyalty. Businesses want to know your customers will continue to come back even after you sell.
- Employee info including how they rate you as an employer, and how the company work culture is.
8. Negotiate all offers
Your broker can help you negotiate all of your offers before accepting a final bid. But as they’ll likely tell you, there are still a few basics to follow with any negotiation:
- Have a final number before you negotiate. It’s easy to get excited during a negotiation, so have the lowest you’re willing to go in mind before you start trying to make a deal.
- Consider more than just price. You spent a lot of time creating a business that you’re (hopefully) proud of. You want to make sure the buyer will continue that legacy. So, if there are any substantial changes they want to make (i.e. laying off employees, etc.), negotiate those points, too.
9. Receive payment upfront
Once it’s time to finally close on the sale, there’s one final step you need to make sure you follow: make sure your sales agreement includes you getting paid upfront. After all of this, the last thing you want to happen is to have someone continually delaying payment even after the business is out of your hands.
Some buyers will ask you to consider getting paid in installments. Negotiate these offers, if possible, as this could leave you unprotected if the buyer ends up with financial issues down the road.
How To Prepare Your Business For Sale
When selling a small business is vital to ensuring you get the highest offer(s) possible. Whether you’re selling a physical business or an online business doesn’t much matter, you’ll still need to make sure everything is in order before even considering listing it for sale. Here are a few tips on prepping your business for the market:
- Improve your sales, if need be. No one wants to buy a failing business. If your business hasn’t done the best in the last few months, you can sell, but it won’t be the best time to do so. You won’t get as high of a price as someone who owns a thriving business. Take a few months and do your best to boost sales.
- Fix-up your business. Chances are, there’s something you can improve on. For physical businesses, this may mean painting the interior and exterior of the business and making other cosmetic updates. For online business, it could be freshening up your website design.
- Document Processes and People. Your processes and your people (staff, customers, service providers, etc) are critical to the ongoing success of your business. A purchaser will need these. Clear documentation can also make it easier when you are deciding how to transfer business ownership.
- Take a serious look at your finances. If you’re a small business owner who has had a DIY approach to your finances, consider meeting with an accountant. This can help you offer potential buyers clean, easy-to-understand financial statements that can help them decide if they want to make an offer on your business.
- Know what mistakes to avoid. Selling your business is a big deal. It may be your most valuable asset, so you don’t want to make mistakes that can easily be avoided along the way. For starters, don’t go it alone, you almost definitely won’t be getting the best price. Plus, make sure you don’t hold out too long, or else all of your offers could disappear.