How to Sell a Small Business in 7 Steps
Marketing a small business is a complex process that requires careful thought. You might need to work with a broker, ecommerce accelerator, accountant, or lawyer as you move forward. Whether you make money off the sale will rely on its rationale, when it happens, how well the company is run, and how it is structured.
You'll need to devote a lot of time to the business sale, and once it's done, you'll need to figure out how to manage the earnings. With the help of an ecommerce accelerator, finding out why you want to sell your company, making sure it's in the condition it requires to be in for sale, and choosing the right time to market are the first steps.
It is crucial to start planning for the sale at least a year or more in advance because you will have more time to enhance your financial records, clientele, and other aspects of your business that can increase its performance to price your firm correctly and ascertain its value. Take into account using an ecommerce accelerator. Decide whether you'd prefer to negotiate the sale alone or utilize a business broker. Gather your previous tax returns and financial statements, then organize them. Discuss the facts with an accountant. Getting a buyer is a difficult task that might take years to complete.
Once a qualified buyer has been identified, many financial checks and additional actions must be completed to keep the process rolling. Don't make large purchases at once. Spend time deciding how you want to invest or use the money by consulting with a financial specialist.
- Reasons for the Sale
The following motives are frequently given by owners when selling their companies:
- Partnership conflicts
- Illness or passing
- Getting too busy
When a firm is not successful, some owners consider selling it, making it more difficult to find purchasers. Consider the company's capacity for sales, preparation, and timing. Your company can look more appealing by having a variety of factors, such as:
- Growing profitability
- Reliable income numbers
- Strong client base
- Long-term, significant contract
- Timing of Sale
Prepare for selling as early as possible, ideally a year or two in advance. You can increase the profitability of your business by improving your financial records, organizational system, and clientele with preparation. Additionally, these upgrades will make the transition for the buyer easier and maintain business operations.
- Business Appraisal
The next step is to assess your company's value to ensure you don't overcharge or undercharge. To receive a valuation, find a business appraiser. The appraiser will create a thorough justification of the value of the company. The supporting documentation will provide the asking price legitimacy and can be used to determine your listing price.
- Should You Work with a Broker?
You can save money by selling the business and avoiding paying a broker's commission. Additionally, selling to a dependable family member or present employee is the wisest action.
In other cases, a broker can free up your time to focus on running your business or keep the sale discreet to get the best price (because the broker will want to maximize their commission). Maintain frequent communication with the broker and go through expectations and marketing.
- Getting Documents Ready
Gather your tax returns and financial statements going back three to four years so that you can evaluate them with an accountant.
Make a list of the equipment that is included in the business sale as well. Make a list of people to contact for sales and supply transactions, and locate any pertinent documents, such as your current lease. Make copies of these records and give them to prospective buyers who meet the necessary financial requirements.
You should also provide an overview of how the company operates in your information packet and a current operating manual, if possible. Additionally, you should ensure that the company is well-kept. Before the sale, any parts of the company or deteriorated equipment should be repaired or replaced.
- Locating a buyer
According to SCORE, a nonprofit organization for entrepreneurs and allies of the U.S. Small Business Administration, a business sale may take anywhere from six months to two years. Finding the ideal customer might be demanding. Don't restrict your advertising; you'll draw in more potential customers.
Here's how to continue the process if you have potential buyers:
- Speak with two to three prospective purchasers if the first agreement falls through.
- Keep in touch with prospective customers.
- Before disclosing details about your company, ascertain whether the prospective buyer is pre-qualified for finance.
- If you intend to finance the transaction, discuss the specifics with a lawyer or accountant so that you can agree with the purchaser.
- Give opportunity for negotiation, but maintain your position on a fair price that considers the company's future worth.
- Document all contracts in writing. The prospective buyers should sign a nondisclosure/confidentiality agreement to safeguard their information.
- Make an effort to place the signed purchase contract in escrow.
Following the sale, you can come across the following documents:
- The bill of sale assigns the buyer ownership of the company's assets.
- The transfer of a lease.
- A security arrangement that allows the seller to keep a lien on the company
Additionally, the buyer can need you to sign a non-compete agreement, in which case you would renounce starting a rival company and stealing clients.
The typical fee charged by a company broker for enterprises under $1 million is 10%; while that may seem high, the broker could be able to work out a bargain that is more advantageous for you than the one you could have gotten on your own.
- Managing the Revenue
Wait a while—at least a few months—before using the sale proceeds. Make a strategy describing your financial objectives and find out whether there are any tax repercussions due to your sudden windfall. Consult a financial expert to decide how you want to invest the funds and concentrate on the long-term advantages, such as paying off debt and setting up money for retirement.