Seven Steps to Sell Your Small Business
Written by: Patrick Findaro
Last Updated by
Catalina Lima: August 12, 2022
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Anyone who has ever sold a small business knows that the process can be daunting. However, there are several things that can make it much more manageable. For example, small business owners can enlist the help of lawyers, brokers, and accountants to help ease the task. Profiting from the sale, however, will depend much on how the organization is structured, reason and timing of the sale, and, of course, its current strength. Selling the business on average takes more than six months. Owners must be able to follow certain stages in preparing for a sale. These seven tips from Vetted Biz will help business owners sell their business smoothly.
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Sell Your Small Business
1. Communicate Clearly The Reason To Sell Your Business
Perhaps one of the most relevant questions that a potential buyer will ask is “why are you selling your business?” While owners may have several reasons, the most common are retirement, illness, being overstretched or stressed. However, it is also common to see owners want to sell their business if they are failing to maintain a profit. This is one factor that will make the business much less attractive and harder to sell. It is better to make the organization look profitable by showing increases in profits, a consistent income, a good customer base and multi-year contracts.
2. Timing Of The Sale
The preparation to sell a small business should start long before listing it on the market. The financial records of the company are an important selling feature and must be prepared far in advance. Time will be needed to build the company’s customer base and ensure the organization is operating well before the sale’s sign can go up.
3. Business Valuation
The sales price is also an essential factor to carefully consider. The price cannot be too high nor too low. It may be in the best interest of the seller to have the organization appraised to obtain a fair estimate on its value. The appraisement documents will also be a great selling feature and bring the listing price a more credible appearance.
4. Should You Use A Broker?
Although a small business owner can keep more of the profits when they sell the business themselves, it may be in the seller’s best to hire a broker to help with the tedious transactions and processes. It may also be a vital decision to keep the sell of the business quiet while running day-to-day operations. A broker can quietly too for the best candidate to buy the business at the best price while the owner can continue to serve the customers.
Leading business brokers also leverage their network of prospective buyers for the business.
5. Preparing Documents
One other important part of selling a business is the paperwork. Searching for financial statements and putting them together may seem like an impossible task. It would be a good idea to enlist the help of a qualified accountant with experience in preparing a business for sale.
It is important to list the company’s inventory of assets, equipment and furniture that will go along with the sale. Another list of point of contact for suppliers and various sales transactions will also be needed. Copies of these documents will have a great value to the potential buyers when making a decision. Also, it is a good idea to provide a packet which provided an overview of the operation for the organization. This should include how business is conducted and how each working part plays a role in the organization. Furthermore, any maintenance issues or broker equipment should be repaired or replaced before the final sale.
6. Finding A Buyer
It takes 6 to 24 months for a business to be sold according to one professional association, SCORE, a partner with the U.S. Small Business Association. Of course, conditions could vary depending on a number of factors. However, it may take time to locate the right person to buy the business. However, it is a good idea to advertise widely to put the deal in front of as many potential buyers as possible. It may be important to court up to three possible purchasers at even given time. When potential buyers have been found, there are tasks which must happen in order to help finalize the process.
First, as mentioned, it is always a good idea to have a number of potential buyers waiting in case a deal falls through. It is also important to stay in contact with potential buyers. Buyers should also meet certain qualifications or be able to buy before providing them with the company’s important information. For those who may want to do the financing themselves, it may be a good idea to consult legal advice and or employ an accountant to assist in creating the deal. There also should be room to negotiate. Sellers must stand by the price that they see is fair. However, one should not be unreasonable.
Agreements that are reached in the process should also be put into writing. Same as with the seller’s information, nondisclosure agreements and confidentiality documents should be signed by the potential buyer. Signed purchasing agreements should go to escrow as soon as possible. There are also a number of documents which must be signed and complete after the actual sale. For example, the bill of sale must be complete to transfer the business and the appropriate assets to the new owner. If there is a lease involved, this must be assigned. If the financing is done by the seller, then a security agreement which entitles the seller to hold a lien until the amount has been paid in full will also be needed.
Finally, the buyer will probably want the seller to sign a “non-compete” agreement. This agreement will state that the seller is not allowed to start up a similar business close enough to the sold property and compete with the buyer.
7. Handling The Profits
Managing the profits from the sale is just as important as selling the business. It is suggested that the seller take some time and decide what is the best option when reinvesting the money. It is important to take the time and create certain goals and make a plan to reach them. There are also certain concerns about accumulating wealth in the short term, such as taxation. It would be a good idea to talk with professionals who can help to guide your steps in what may be the best way to invest the profits made off of the sell. Many organizations offer free advice on how to reinvest the money. However, it is best to consult with a licensed financial advisor and accountant.
