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
- 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
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.