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
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 with the goal of making 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.
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.
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).
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.
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, according to SCORE, a nonprofit association for entrepreneurs and partners of the Small Business Administration (SBA).
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 nondisclosure/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
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.
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 work toward your short- and long-term goals.
How Do You Sell a Franchise Business?
You'll need to work in conjunction with your franchiser, as they will need to determine if the new buyer is appropriate. Plus, that new buyer will need to sign a franchise agreement with the franchiser.
There are a variety of fees and rules associated with owning or selling a franchise. These can be found in the FTC's compliance guide.
How Do You Sell a Business Idea?
It's possible to approach a company with a business idea, but first, do your research, prepare a presentation, and find potential targets. While some business plans are best protected with a patent, others can be secured by getting a potential company you want to work with to agree to a non-disclosure agreement.
Can I Sell a Small Business Without a Broker?
Many people would like to avoid the average 10% commission that a business broker may charge. But the expense may be negligible compared to the risks of selling on your own. If you decide to go it alone, prioritize selling to a buyer you know, make use of the advice of experienced, retired owners and executives, and use all the internet resources available, such as those offered by the Small Business Administration, or the National Federation of Independent Business (NFIB).
How Would I Sell Just My Share of a Business?
Selling your share of a business to your partner(s) is a common ownership transfer method, particularly for small businesses. Have an agreement in place with your partners ahead of the sale to help smooth the transition. This can increase the likelihood that both the remaining and exiting partners benefit.
What Does Selling a Business Cost?
If you go through a business broker and your business is under $1 million, the broker's commission is likely 10% to 12%. Other fees that can crop up include attorney fees, marketing fees, and the costs of making any cosmetic or more substantial upgrades to your business so as to make it more sellable. There are also fees that may come up if you are transferring a lease to the new owner of your business.
The Bottom Line
Selling a business is time-consuming burden and, for many people, an emotional venture. A solid reason for selling or the existence of a hot market can ease the burden. So can the help of professionals, such as business brokers.
It may also be possible to obtain free counseling from organizations such as SCORE. Your local chamber of commerce may offer relevant seminars and workshops, as well.
When all is said and done, the large sum of money in your bank account and your newfound free time can make the potentially grueling process of selling your business worthwhile.