Key Takeaways
* Once you've decided to sell your business, identify why you want to sell and make sure that it's ready to be sold.
* Take the time needed to determine the value of your business and consider hiring a business appraiser.
* Decide whether you want to hire a business broker or negotiate the deal yourself.
* Once you find a good buyer, there are a series of financial screenings and other steps that need to be taken to keep the process moving.
* Work with a financial professional to determine how you want to invest or otherwise use the money you make from the sale of your business.
1. Identify Your Reasons for a Sale
You've decided to sell your business. Why? That's one of the first questions a potential buyer will ask.
Owners commonly sell their businesses for any of the following reasons:
Retirement
Partnership disputes
Illness or death
Becoming overworked
Boredom
Some owners consider selling the business when it is not profitable, but this can make it harder to attract buyers. You must consider whether your business can attract buyers, its state of readiness, and your timing.
What Makes Your Business an Attractive Opportunity?
There are various attributes that can make your business attractive to buyers, including:
Increasing profits
Consistent income figures
Appealing profit margins
A strong customer base
A major contract that spans several years
2. Decide on the Timing of the Sale
Timing is everything. And that includes the time it takes to get everything ready to sell your business. Once you've made the decision to sell, prepare for the sale as early as possible, preferably a year or two ahead of time. The preparation will help you to improve your financial records, business structure, and customer base to make the business more profitable and a transaction more attractive.
These improvements will also ease the transition for the buyer and keep the business running smoothly. Selling a business involves a lot of legwork, discussions, and negotiations. If it's not possible for all of this to occur in person, use services like Zoom or Skype to hold digital business meetings with potential buyers.
3. Get a Business Valuation
Determine the value of your business to make sure you don't price it too high or too low. You can do this by hiring a business appraiser to provide you with a valuation. Once you hire an appraiser, they will draw up a detailed explanation of the business' worth. The appraisal document will give credibility to the asking price and can serve as a gauge for your listing price.
You can also determine the overall value of your business using some key metrics. Consider evaluating your company by determining the market capitalization, earnings multipliers, book value, or other metrics.
4. Hire a Broker
Selling the business yourself allows you to save money and avoid paying a broker's commission. It's also the common sense route when the sale is to a trusted family member or current employee.
In other circumstances, a broker can help free up time for you to keep the business running, or keep the sale quiet and get the highest price. That's because the broker will want to maximize their commission. Discuss expectations and marketing approaches with the broker and maintain constant communication about their progress (or lack thereof).
Even if you decide to sell your business to a close family member or employee, don't rush the sales process. However, if you need a relatively quick turnaround, hire a business broker to speed up the proceedings and keep things on track.
5. Prepare the Necessary Documents
Financial
Gather your financial statements detailing assets, liabilities, and income as well as tax returns dating back three to four years. Review them with an accountant. Dig up any other relevant paperwork such as your current lease. In addition, develop a list of equipment that's being sold with the business. Create a list of contacts related to sales transactions and supplies.
Make copies of these documents to distribute to financially qualified potential buyers.
Operational
Your information packet should also provide a summary describing how the business is conducted, an up-to-date operating manual, and information about roles and employees.
In addition to gathering needed documentation, you'll also want to make sure the business is presentable. Any areas of the business or equipment that are broken or run down should be fixed or replaced before meeting solid prospects or prior to the sale.
6. Find a Buyer
A business sale may take anywhere from a few months to years. This includes the time you take to prepare for the sale all the way to the closing. Finding the right buyer can be a challenge. Allow for solid, ongoing advertising to attract more potential buyers. Once you have some parties interested in your business, here's how to keep the process moving along:
* Have two to three potential buyers in the pipeline just in case the initial deal falters.
* Stay in contact with potential buyers.
* Find out whether the potential buyer pre-qualifies for financing before giving out information about your business.
* If you plan to finance the sale, work out the details with an accountant or lawyer so you can reach an agreement with the buyer.
* Allow some room to negotiate, but stand firm on a price that is reasonable and reflects the company's future worth.
* Put any and all agreements in writing. Potential buyers should sign a non disclosure/confidentiality agreement to protect your information.
* Try to get the signed purchase agreement into escrow.
You may encounter the following documents after the sale:
* The bill of sale, which transfers the business assets to the buyer
* An assignment of a lease
* A security agreement, which has a seller retain a lien on the business
7. Handle the Profits
Now that you've sold your business, it's time to figure out what to do with the profit that you've made. The first instinct may be to go on a spending spree, but that probably isn't the best decision.
Here are a few things you may want to consider:
* Take some time—at least a few months—before spending the profits from the sale.
* Create a plan outlining your financial goals; focus on long-term benefits, such as getting out of debt and saving for retirement.
* Consult with a tax professional to learn about the tax consequences associated with the sale and sudden wealth.
* Speak with a financial professional to determine how you should invest the money so that you can meet your short- and long-term goals.
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