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Easy Steps to Selling Your Small Business

Easy Steps to Selling Your Small Business

Selling your small business can be complicated if you have never done it before. You should consider enlisting a few professionals to help you, like a business broker, CPA and a business attorney. Profits from the sale mainly depend on why you are selling, timing and the strength and structure of your daily operation. Your small business sale will also require a great deal time and effort. Once the business is sold, you may need to learn some ways of handling the profit. The following steps can help you build a solid exit plan while making negotiations as stress free as possible.

1. Why You are Selling
One of the first questions you will get from potential buyers is, “Why are you selling your small business?” Small business owners usually consider selling for one of these reasons:

  • Want to Retire
  • Death of business partner
  • Illness
  • Burnout
  • Boredom
  • Family Issues
  • Low Revenue

Some small business owners contemplate selling when revenues are low, but this can deter buyers. Timing and making sure your small business is ready to sell are very important. If you are thinking of selling due to low profits, consider improving your business before you place your small business on the market. Making some small improvements can mean a much bigger profit for you when you do sell, including:

  • Increasing customer base
  • Adding income sources
  • Improving curb appeal
  • Updating equipment

2. Timing
Small business owners should prepare for selling from the start of their business but at the very least, two or three years ahead of time. Preparing in advance will help ensure that financial records are accurate and that your customer base is well established. Making improvements before you sell will also ease the transition process for the new owner and the business to run smoothly during the transition.

3. Asking Price
A business broker can help you determine the business’s true value so you price it reasonably. Locate a business broker to get a business valuation and sellabilty report. The broker will give you a detailed report on your business’s value. The report helps you determine a credible asking price.

4. Broker vs Independent Selling
Selling a small business on your own can save you by avoiding a broker’s commission. It may be the best option if you are selling your small business to a family member or trusted employee. In most circumstances, a business broker can help with time-consuming tasks, keep the sale confidential and get the highest price possible from the sale.

5. Document Preparation
Put together financial statements and tax returns dating back three to four years and have an accountant review them with you. Make a list of equipment that goes with the sale of the business. Also, update your lists of business contacts, vendors and maintenance companies. Make a copy of your current lease. You will need copies of all these records made into an information packet to give to pre-qualified prospective buyers.

Include in your information packet, a description of how the business is run or a copy of your operating manual. Be sure to have all equipment serviced and running in top condition.

6. Locating a Buyer
Selling a small business typically takes up to 2 years according to complete according to the SBA. Locating a buyer can be a challenge. Business brokers have extensive lists of people looking to buy businesses. Enlisting a broker can greatly speed up the selling process and save you a bundle in advertising. Paying a broker a commission is usually much less expensive that advertising costs over a couple of years.

Here are some tips to help move the selling process along:

  • Have 2-3 prospective buyers just in case the first deal falls through.
  • Keep in contact with all prospective buyers.
  • Find out if your prospective buyers are financially prequalified before giving them your information packet. If you will be financing the sale, work out the details in advance with your CPA or attorney so you and the buyer can agree on terms more quickly.
  • When negotiating, be firm on your reasonable asking price and remind the buyer of the company’s future worth.
  • Put all negotiated agreements in writing. Have potential buyers sign a confidentiality agreement to protect your business information.

    Documents to deal with following the sale:

  • Bill of the sale: transfers assets and the business to the buyer
  • Lease assignment
  • Security agreement: if you are holding a lien on the business

The buyer could request that you sign a non-compete agreement, in which you agree to not start a new business that competes with the one you just sold.

7. After Sale Profits
Before deciding what to do with your profit from the business sale, outline your financial goals, and learn about any taxes associated with the sale of your business. Then, consult a financial professional to determine the best ways to invest the money for long-term benefits, such as becoming debt-free or investing for retirement.

Selling a business is an emotional time for many small business owners. One of the best reasons to consider selling your small business is when the market is “hot”. Timing your sale and enlisting a business broker can ease your burden. In the end, profit from the sale and your new found freedom will make the selling process worthwhile.

Business Exit Strategies Overview

Business Exit StrategiesWhen you first begin a new business, you develop strategies and plan ways to grow your business, but did you realize how important having an exit strategy is? Almost every business owner will want or need to sell their business at some point, for any number of reasons. You’ve started your business or want to start a business because you want to plan for your future right? Don’t forget there may be a business sale in that future and having a business exit strategy is never a waste of time or effort. Depending on your goals, the type of business you choose and the way you grow it should be aligned with your end-game objectives.

Every step along the way, you should plan for a time when you may need or want to exit your business and liquidate your equity through a sale, merger or IPO. You’ll want to build value and equity in your business by selling innovative products and services, developing relationships and distribution channels and expanding your customer base. To assist you, below are of some types of business exit strategies for you to consider and potentially utilize.

Private Sale

Selling your business is the most common exit strategy for any business owner. Business owners often know they will sell their business when it is time to retire but they forget to think about having to sell quickly. An illness or death is just two of the reasons an owner might have to sell quickly and soon than expected. Keeping accurate and complete business records along the way helps to ensure a smooth and quick sell no matter when the time comes to sell your business. When it is time to sell your business, the trickiest part of any sale is valuing the company. Since many small businesses are privately owned, determining the final sale price in a sale is typically more of an art form than science. Make sure you get a few appraisals of the business so that you can average them to find the right asking price.

Mergers

A merger is two companies getting together, establishing the value of each company and merging the two to form one larger company. In most mergers, the company shareholders receive stock in the bigger company which is usually worth more than the stock in each independent company. If you decide to merge your company with another upon retirement, you will no longer have to work the business and receive a share of profits by retaining stock in the new company. Just be aware that in mergers, you may not actually receive money from your stocks until a later date.

IPO

Selling your business in the stock market through an initial public offering is called an IPO. With an IPO, business sellers often get the biggest payout of any other exit strategy. Adversely, it is very expensive to obtain an IPO, business owners easily spend a half million dollars on attorney and accountant fees alone. In addition, there are a lot of restrictions to liquidity via an IPO, so if your business is not in the technology sector or has less than $50 million in revenues, you should strongly consider a different exit strategy. It is also important to remember that the strength and weakness in IPO markets are difficult to predict, therefore much harder to plan ahead for.

Buyout

Similar to a private sale is a buyout where a team or individual, in the same line of work, buys you out and takes over your business. This is typical with small to medium sized businesses that provide professional services in industries like insurance, accounting firms, law firm distribution and manufacturing companies.

A buyout is often tied to performance of the business at the time of the buyout as well as after you exit. Generally, you’ll get a far better deal if the buyout person or company can pay you upfront rather than agreeing to a “leverage buyout” where they use the future revenues of the business over time to pay off their debt to you.

Asset Liquidation

If your business is debt-free, you can liquidate your assets by closing your business and selling off the assets. The challenge in this is finding buyers who feel that your assets have value, and you’ll have to negotiate to get a fair price. With this type of business exit strategy, you will likely receive the least amount of money for your exit. Asset liquidation is often used by business owners who need to sell quickly for personal reasons.

If you are thinking of buying a business or currently own a business, part of having an exit strategy is working with a professional business broker. You never know when life will throw you a curve ball and having a broker at your fingertips, who already knows you and your business, will make it all much easier to deal with.

Is My Business Sellable?

Are you thinking of selling your business, but not really sure where to start?

Do you have an Exit Strategy in place?

Like most hardworking small business owners, you don’t have time to eat your Wheaties, let alone finding out your business’s sellability, if it is attractive to potential buyers.

How many times have you told yourself, I’ve got to sell my business if I’m ever going to retire.”? When you’re in operational mode, there’s little time to check into the value of your business or how attractive it is to buyers should you choose to sell in the near future. With so many vital tasks at hand, it is easy to keep putting it off.

You may not even be considering selling your business at this point; however completing the Sellability Score can help you to plan your exit strategy effectively. It can assist you in building and growing your business in such a way that, when the time comes to sell, your business’ sellability will be maximized to its full potential.

Now, there’s a way to find out if you have a sellable business and it only takes a few minutes of your valuable time. It produces highly qualitative and quantitative results that provide solid remedial action to solve problems. It’s called the “Sellability Score” and it’s based on an advanced, scientific algorithm.

Sellability Score for Business

The sellability business tool was developed by John Warrillow. He is the author of “Built to Sell: Creating a Business That Can Thrive without You.” This innovative tool shows business owners how their business would stack up against their competition. If you tried to sell your business today, you will gain valuable insights into how potential buyers would analyze your business, including:

  • Where your business stands on a scale from “easy” to “hard” to sell.
  • Based on your sellability score, your best options for selling your business.
  • The most important questions to ask yourself prior to selling you business.

Once you know your position on the Sellability scale  of 1 to 100, you can start taking the appropriate actions toward preparing your business for sale. Since the endgame is to “realize your dreams” when you walk away from your business, your goal should be to get every penny you’ve earned over the years in your business.

Take the test here and find out: Sellability Score questionnaire. It is…

  • Absolutely Free
  • Confidential
  • Takes a Few Minutes

After completing the questionnaire, you will immediately receive a Sellability Score out of 100 along with instructions for interpreting your results. A Florida Business Broker will contact you to arrange a review of your report and answer any questions you might have.