There’s an avalanche of useful information out there about starting a business. On the other hand, it’s much more difficult to find a trustworthy source on how to sell a business. If you are ready to move on to a new chapter in life and wonder, “How do I sell my business?” this guide is for you.
This helpful resource will take you step-by-step through the entire process. You’ll learn what you need to do and the best, stress-free ways to sell your business.
Why Sell a Business
Before you even begin to sell your business, it’s important to be clear on why you are doing it. This is a question potential buyers might ask you, and it’s good to be prepared.
These are the most common reasons that people sell their business.
Retirement is the biggest reason most people sell their business. They are ready to work less and travel more, or they don’t want to be a business owner this late into life.
If a person can sell their business for a price that allows them to have a comfortable retirement – no matter the age – it’s definitely tempting.
Another reason people sell their business is that they want to switch industries. Maybe they built up their business but are interested in a different opportunity. It makes sense to sell the first business and focus on the next thing.
If someone gets the chance to sell their business at a profit, then this is an offer that is tough to turn down. Business flipping is a lot like house flipping. The entrepreneur builds up sales and the business and then sells it, earning a hefty profit for their efforts.
Makes Financial Sense
There are a plethora of risks associated with owning a small business. Anytime a business owner has the chance to get liquidity by selling the business (or a part of the business) it is a good idea.
Maybe the owner wants to sell because they are unable to absorb the financial risks. This happens either in the beginning stages or later on when the damages can get pricier.
If a person grows uncomfortable with the amount of risk it takes to own a small business, it might be time to sell it.
Illness or Death
Finally, physical health plays an important role in someone’s ability to run a business correctly. When one’s health begins to decline, it’s common to consider selling the business.
This also includes the times when a partner in the business dies or is unable to do their share. It’s more important to focus on family and health than trying to operate a small business.
How to Sell a Business
No matter the reason for selling it, there are specific things you must do when you are ready to let it go.
The most important thing is to speak with an experienced financial consultant who will work with you to prepare for a successful transaction.
1. Make It Look Financially Attractive
The first thing you need to do is increase sales and profitability. To attract serious buyers, the business must look like a solid investment that will pay off.
One of the best ways to make your business look desirable is to increase sales and decrease debts. If you can prove that the business is steadily increasing in sales and revenue, buyers will be more inclined to sign on the dotted line.
2. Start Preparing Early
While you are trying to increase sales and make the business look financially attractive, you should also clean up the books and spend time organizing all the paperwork.
When you begin to sell your business, potential buyers will have a lot of questions about the financials. Do the prep work ahead of time so that you are ready to answer all of their questions.
There are things you can do a year ahead of time, like improving your business structure and customer base, that will help it sell at a higher profit.
3. Get a Professional Valuation
To understand how much your business is worth, you must have it evaluated. Most small businesses will sell for about three to six times your normal cash flow. Knowing where your business sits on this spectrum is tough, so you will need to hire a third party.
A business valuator or agency will look closely at sales, debt, inventory, and revenue and create a precise figure identifying what your business is worth.
This is a lot like a home appraisal. After a homeowner has a current appraisal, they have a better idea of what it might sell for – and the same is true for your business.
4. Prepare an Exit Strategy
Next, create a process that you can enact as soon as you hand business ownership over to the new buyer.
In your exit strategy, include what happens to the current staff, how to manage pain points that might occur during the transition, and what your role will be after the sale is final.
5. Safeguard Secrets From Suspicious Buyers
There are some private financials that are shared with potential buyers. This information could damage your business if it ended up in the wrong hands – like a competitor.
The best way to protect your business information is to ask buyers to sign a Non-Disclosure Agreement (NDA). Not only does this prevent the potential buyer from sharing the information with anyone else, but they also cannot use the information to undermine you as the seller.
6. Decide Whether to Use a Broker
If you go through a broker, you won’t make as large of a profit. It might be tempting to keep all the profit for yourself and just do it all, but there are a lot of reasons that a broker will help you.
For example, if you are selling the business to a close friend or family member, the broker is an unbiased third party that will handle the issues that commonly arise among family members.
A broker can also free you from the burden of pouring over paperwork and following up with lenders and the buyer. Since they work on commission, the broker will help you get the highest price that you can.
7. Organize Paperwork
There is going to be a slew of paperwork involved in selling your business. It’s a smart decision to find a lawyer you can trust who can help you draft and review all contracts.
Make sure you hire a lawyer that has experience with contract law. There are a lot of loopholes that can work against you if you don’t catch them early.
Also, you’ll be dealing with more than contracts. Make sure you have tax returns from the past few years and review them with your accountant.
Other important documents you’ll need to find and organize include current lease agreements, customer information, operating manual, employee manual, and a list of equipment that you own.
How Much Selling a Business Costs
There are a lot of different things that influence the cost of selling a business. A broker will take a commission of about 10-12 percent.
On top of that, you will probably incur attorney fees, the cost of improving the business so that it is more valuable, and marketing fees.
Rely on Professionals to Help You Sell Your Business
When you are ready to sell your business, rely on financial consultants who can tell you whether this is a good time to sell it and what you can do to maximize your profits.
A business consultant will walk you through every step and help you have the best experience so you can live your best life.