Selling your business is not an easy process — personally or professionally. However, there are certain tasks you can do to prepare both your business and yourself for a smooth, successful transaction. Here's a step-by-step process for preparing your business for sale, as well as a rundown of who you can count on for support during this process.
Determine your goals for the sale
Why do you want to sell your business? Every small business owner will have a different answer to this question, but knowing what you want out of a sale is crucial for a successful transaction. Common goals include maximizing profit from the sale of your business, making sure your employees will be well cared for, having a quick and clean transaction, and securing a legacy for your business.
List your goals and organize them by priority. Although it will be difficult, figure out which goal is the most important to you. When the time comes for negotiations, you may not be able to achieve all of your goals, but clearly outlining your priorities will help ensure you actually achieve the ones that are most important to you.
Ensure you’re emotionally prepared for the sale
The process of selling a business is stressful and emotional; the amount of time needed for preparation and negotiation as well as the associated costs can be overwhelming. Beyond that, you’re also letting go of control over a business that has likely been a major part of your life. For many business owners, their small business was a part of their identity for years, and letting go of that can result in grief.
Preparation is one of the best ways to navigate personal emotions surrounding the sale. You can make arrangements for any remaining employees and have a plan for what you will do next. Additionally, don’t be afraid to talk to a mental health professional about the stressors and emotions you experience during the sale.
[Read more: How Do I Prepare to Sell My Business?]
Consider your customers
When evaluating the financial potential of your company, prospective buyers may consider a limited customer base to be a detriment — because losing any of them could majorly impact your income. Additionally, you have likely formed personal relationships with your customers that you want to protect and honor through the sale of your business.
If you have a smaller number of customers, you can make your company more appealing to buyers by offering new products and services to expand your client base. You can also calculate the profitability of your relationship with each customer. If there is a stark difference in the money you make from one customer and another, you can cease business with the less profitable customer.
Additionally, consider how customers pay you for your services. Do they pay in advance? Do you operate transactions on credit? Settle any outstanding invoices so a potential buyer doesn’t have to worry about when and how they will be able to settle any outstanding debts when they take over.
Build a support team
While your lawyer and accountant hold invaluable knowledge about your business, you may need to bring in other experts who can assist with the actual sale of your businesses and guide you through the process. You can connect with a business broker to help sell your business, as well as transaction lawyers and accountants to ensure every detail of the sale is accounted for. Although it might sound like just another expense, hiring professionals to handle your sale can minimize the chance of errors, annoyance, and unexpected financial troubles in the future.
Unless you’re in an emergency situation, plan the sale of your business as far in advance as possible. Transaction lawyers and accountants can do their best to maximize the value of your sale when they have a generous time frame to work with. As professionals, they can offer you instructions on how to reduce and negotiate your debt as well as generally boost the financial health of your company.
Preparation is one of the best ways to navigate personal emotions surrounding the sale.
Offer incentives to your employees
When selling your business, it's important to be open with your employees so that they have clarity throughout every step of the process. If any of your employees are shareholders of your business, offer them favorable incentives to sell back their share of the company. Shareholders have the potential to hold the company hostage during negotiations, so it's important to give your employees clarity and incentives, such as a sales bonus or stock options, to avoid these conflicts.
Get a business valuation
Before you can start fielding offers for your business, you'll have to know what your business is worth from an outside source. Getting a professional valuation gives you an idea of what your business is worth, as well as its market position, financial situation, strengths, and weaknesses.
You can get a business valuation from a few different objective sources. These can include local accounting firms, regional business brokers, and investment banking firms. To get the fairest result, make sure that whoever is performing the valuation has access to the most current national data regarding transactions in your industry.
[Read more: What Is a Business Valuation and How Do You Calculate It?]
Organize your books and paperwork
Perspective buyers will generally ask for at least three years’ worth of your financial information to review before they make an offer. Take an internal perspective of your business, books, and paperwork to make sure that everything is organized, accurate, and easy to review. The more formal and thorough that your financial statements are, the easier it is for buyers to review them and you'll be better off.
In some cases, having three years’ worth of tax returns may be sufficient for review. However, whenever a business is being prepped for purchase, it is always better to have more financial information than less.
Understand your business's profitability
Many businesses incur nonoperational expenses, such as paying for a personal automobile lease or renting out office space. When organizing your financial documentation, make sure you have supporting information for all these expenses. This also includes any infrequent expenses that you may have incurred over the last three years. These expenses should be excluded from a buyer's analysis of your recurring cash flow. Having all these expenses understood makes it easier for both you and any potential buyer to understand the profitability of your business.
Market your business and find buyers
Once you have everything internally straightened out, you can market your business to attract buyers. There are a few different types of avenues you can use to find them. This can include going through a professional, such as a broker or real estate agent, or marketing yourself through traditional or digital media, your existing network, or word of mouth. The method you choose will depend on what industry you're in, the location of your business, and the size of your organization. To help gauge the best way to market, look at how businesses of similar size and structure were sold off and how they found buyers.
Make a sales agreement and transfer ownership
After you’ve found a buyer and negotiated a sales price, work with a lawyer to create a sales agreement and transfer ownership to the buyer. This process could go back and forth for some time, as there are many specific documents that need to be created and carefully executed. Work with your lawyer and your buyer's legal representative to ensure clear communication between both parties during this process.
[Read more: ‘Invest in Yourself’: How to Grow Your Business With Self-Investment, Education and Authenticity]
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