Selling a small business is a complicated process that requires the help of a broker, accountant and an attorney. Contrary to popular belief, the sale of a business isn't necessarily a profitable one. If the business is taking a downturn or you sell at the wrong time, you may walk away empty-handed.
These six considerations will help you navigate the selling and negotiations processes.
1. Why are You Selling the Business?
Why are you selling your business? This is one of the first questions buyers will ask, and your answer will almost certainly affect the buyer's interest.
Maybe you want to enjoy an early retirement, or you feel you're overworked. Maybe you're bored with the business or a dispute with your partner has made it impossible to work together. In some cases, business owners sell because of an illness or a death in the family.
Of course, some businesses are put up for sale because they are no longer profitable. In this case, finding a serious buyer can be a challenge. Taking steps to increase profits before you sell may improve your chances of finding a buyer.
Be prepared to tell buyers the reason behind the sale.
2. Preparation is Key
Selling a business isn't something you just dive into and hope for the best. Just like anything else in the business world, you need to be prepared. Ideally, you want to start preparing a year or two in advance of the sale.
Use this time to make improvements, such as:
- Increasing profits
- Expanding your customer base
- Improving your internal structure
- Ensuring you have consistent income figures
Preparation will help make the sale as quick and profitable as possible. A thriving business is far more likely to attract serious buyers than a business that's hanging on by a thread.
You might consider working with a professional who specializes in business transition services to ensure you understand and are prepared for the sale.
When making preparations, you'll also want to decide whether you're going to use a broker or sell the business yourself.
Selling the business yourself will eliminate the broker's fee, but can eat up a lot of your time if you don't already have a buyer lined up. Brokers can free up your time by taking care of the grunt work, so you can carry on with running your business.
3. Evaluating the Value of Your Business
You're ready to sell your business, but for how much? Much like when selling a house, you need to determine the value of your business before you list it for sale.
Get in touch with a reputable business appraiser for a proper valuation. The appraiser will provide you with a document that details the value of your business. This document will serve as validation for your asking price.
4. Get Your Documents in Order
Buyers will – rightfully – ask for a lot of information when evaluating your business. It is your responsibility as the business owner to be prepared. Gather the following documents:
- Tax returns (previous 3-4 years)
- Financial statements
- List of equipment to be included with the business
- List of vender contacts and sales transactions
- Any other relevant documents, including lease paperwork
Sit down and review these documents with an accountant. Make copies of all of these documents to distribute them to potential buyers.
5. Find a Buyer
It can take between six months and two years to find a buyer for your business. Be patient and do not limit your advertising.
Work with a good attorney to ensure the deal goes through properly.
6. Create a Plan for Handling the Profits
Experts recommend having a plan for how to handle the profits from the sale. Keep in mind that selling your business will have tax consequences in most cases. You might consider looking into smart investments, saving for retirement or paying any outstanding debt you might have.