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So, you’ve decided to say goodbye to your business.
We get it, it’s a big step, and you want to get it right. Selling your business isn’t as simple as shouting from the rooftops and handing the keys to the first interested party.
Remember, selling a business isn’t a sprint; it’s a marathon. You’ve got to think about timing the sale just right, ensuring your business is in tip-top shape, and not leaving any money on the table.
So, if you’ve decided it’s time to pass the baton, let’s walk through this eight-step map to ensure your business sale journey is on the right track.
Over the past two decades, our team has launched and sold various businesses, each serving as an invaluable learning and growth experience. In addition to contributing to several leading publications and our crowdspring blog, we’ve had the opportunity to share our knowledge with thousands of aspiring entrepreneurs globally, mentoring them through platforms such as Techstars and Founder Institute. This blend of expertise and business acumen gives us a distinctive viewpoint on the triumphs and challenges of starting, growing, and selling businesses.
How To Sell Your Small Business
One of the first questions a potential buyer will throw your way will be, “Why are you selling?”
After all, they are eager to start their entrepreneurial journey with your business and might be puzzled about your decision to part ways with it.
So it’s critical to nail down your reasons and be ready to share them when asked.
Typically, people sell their businesses due to:
Regardless of your rationale, ensure it rings true and doesn’t wave red flags to your potential buyers. For instance, it’s not the best idea to admit that your business is sinking – that’s likely to make buyers take off faster than a hat in the wind.
Instead, home in on the business’s winning features and unique strengths and underscore its growth prospects. Make a potential buyer see the potential goldmine they’re about to invest in.
Tout some of your business’s stellar qualities when pitching it to prospects. Perhaps it’s a devoted customer base, a steady revenue stream, or accolades your business has racked up over the years.
Remember, the effort and dedication you put into your business now can directly impact the price tag you can command when it’s time to sell. So, it’s worth doing your best while you’re at the helm, ensuring you reap the best possible rewards for your blood, sweat, and tears.
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2. Ensure that all documents are clean and organized
Being a business owner isn’t just about the grand ideas and the exciting pitches. It’s also about keeping things tidy behind the scenes.
Organization isn’t the most glamorous part of entrepreneurship, but it pays off when it’s time to sell.
Your knack for keeping business operations streamlined, documents updated, and finances in check will not only keep your business shipshape, but it’s also likely to pay dividends when you’re ready to sell.
Keep your financials robust by ensuring your taxes are paid on time and profits are indicated on your tax returns. Remember, your business’s financial health is one of the sexiest things to a potential buyer and can help you bag the maximum profit when selling.
To size up your business’s worth, ask yourself a few key questions:
Remember, the more you know about your business, the better your position will be when it’s time to sell.
Don’t forget when you present your documents to a potential buyer; you want them to be clean and well-organized. Keep the language simple and ensure any fine print is crystal clear to avoid buyer confusion. It’s all about making the process as smooth as a fresh jar of peanut butter.
3. Start preparing early
Preparation is the secret sauce to selling your business successfully. The earlier you start, the better.
Ideally, start your prep work a year or two before the planned sale date. That way, you can take care of all the big stuff, like sprucing up financial records, strengthening your customer base, and more.
Boosting company performance is also crucial. You demonstrate to potential buyers that your business is a well-oiled, profitable machine by fine-tuning every department, enhancing marketing efforts, and polishing business operations.
Remember, you’re not just selling a business; you’re selling to a customer. Don’t skimp on the details – the more you have in order, the smoother your negotiations will be.
4. Estimating your business valuation
As business owners, we’re prone to believe our businesses are priceless. After all, it’s a labor of love – you’ve poured countless hours, resources, and energy into keeping it afloat.
But potential buyers won’t see your personal journey as a value-add. They’ll size your business by its profits, losses, successes, and other vital stats. Hence, bringing in an expert to estimate your business value and help determine the correct price tag is crucial.
These experts will evaluate your business by:
You’ll then get an estimate or range of your business’s value and the selling price, often based on your profits and the market value of similar recently-sold companies.
And remember, specific attributes can make your business shine brighter than the competition:
Remember, each attribute adds value to your business if you decide not to sell it, making it more attractive to potential buyers.
5. Deciding whether to hire a broker
Selling a business isn’t a walk in the park. Bringing a reliable broker on board can help you navigate the process.
Brokers do the heavy lifting when it comes to selling your business. They’ll guide you through the proper selling process, help with the necessary documents, and provide support in all aspects of the sale.
Some of the tasks brokers perform include:
Understanding brokerage fees
Brokers earn their keep through a commission, a percentage of the sale. This depends on the business size, company type, and the deal’s complexity.
Our team has been involved in selling numerous businesses. Here’s a general guideline for broker commission rates:
These are general estimates, and actual rates can vary. Always confirm the fee structure and percentage before hiring a business broker. Different brokers might also have minimum fees, so it’s essential to understand the entire cost structure before moving forward.
Remember, not all brokers offer the same level of service or expertise. It’s essential to conduct thorough research, ask for client testimonials, and understand their process in depth before choosing a broker to partner with.
The best brokers are transparent about their process, provide references, and can articulate the value they’ll add to the sale process, regardless of whether your business operates in an offline or online space. The ideal broker will have experience and success in selling businesses similar to yours.
6. Scout qualified buyers
Selling your business is a pretty big deal! You should only be courting serious offers from those interested in buying.
Now, your broker can help you find these unicorn buyers, or you can venture out to find them yourself.
But how do you know they’re serious? Here are a few essential questions you need to consider:
Understanding their intentions is critical to knowing if they can take your business’s reins.
Once you’ve identified potential buyers, consider these steps to keep the conversation flowing:
7. Prepare the documents to close the deal
Deals often crumble at the last hurdle because of hitches in final negotiations or lack of documentation. So, let’s ensure you cross the t’s and dot the i’s!
Your broker can introduce you to a legal eagle specializing in business sales, or you can find one yourself. These legal gurus ensure every minute detail is reviewed to protect all parties involved in the deal.
Here are some of the documents you’ll need to prepare for your business sale:
Discuss any other documents you’ll need to close the deal with your lawyer or broker. Once all the paperwork is in order, it’s time to seal the deal with a hearty handshake.
8. Be wise about spending your profits
Give yourself a few months before you start to spend. This way, you’ll have some breathing space to consider your financial goals and be aware of any taxes related to your sale.
For instance, if you’ve sold your business to kickstart your retirement, it’s wise to avoid splurging all your money immediately. Remember, this money needs to support your sunset years. Get solid advice from a financial advisor on managing your money and making it work.
Key takeaways
We’ve covered a lot of ground in this guide on selling your small business. Whether you’re running a brick-and-mortar store or an online startup, we’ve given you tips, strategies, and insights to navigate this big decision.
Now, let’s highlight the most impactful takeaways to remember. These nuggets of advice are your cheat sheet, your quick reference guide as you stride towards a successful business sale.
How to sell a business FAQs
How can I sell my business without engaging a broker?
While saving on broker commissions can be tempting, selling a business independently is challenging. If you decide to go this route, consider seeking advice from experienced, retired executives or owners. Utilize resources from the Small Business Administration or the National Federation of Independent Business (NFIB), and consider selling to an acquainted buyer.
How do I sell my business to a competitor?
Selling a business to a competitor involves the same basic steps as selling to a non-competitor. However, protecting sensitive information about your business during negotiations is crucial to prevent potential misuse.
What’s the best way to sell my business online?
Selling a business online involves leveraging digital platforms for negotiations, discussions, and meetings. Tools like Zoom or Skype can facilitate business meetings with potential buyers. Ensure that all information exchanged is done securely to protect your business data.
How can I accelerate the sale of my business?
While rushing a business sale is not advisable, employing a business broker can expedite the process if circumstances necessitate a quick sale. Ensure that all critical steps are taken and that due diligence is performed to prevent future complications.
How do I value my business for sale?
Professional business evaluators can provide an unbiased estimate of your business’s value. Alternatively, you can use several methods, such as determining market capitalization, considering earnings multipliers or book value, and other relevant metrics.
How can I sell a business idea?
Presenting a business idea to a company requires thorough research and preparation. Protect your concept through patents or secure nondisclosure agreements with potential companies interested in your idea.
What costs are involved in selling a business?
Costs of selling a business can include broker commissions, typically 10% to 12% for businesses valued under $1 million, legal fees, marketing expenses, and costs associated with enhancing your business’s appeal. Transfer of leases may also incur additional fees.
How do I sell a franchise business?
Selling a franchise involves close coordination with the franchiser, who needs to approve the new buyer. The new owner must sign a franchise agreement with the franchiser. Review the FTC’s compliance guide for comprehensive information on fees and regulations for owning or selling a franchise.
How can I sell my share of a business?
Selling your share of a business often involves transferring ownership to existing partners. Establishing an agreement with your partners before the sale can smooth the transition and ensure mutual benefit.
What is the process of transferring intellectual property during a sale?
Transfer of Intellectual Property (IP) is integral to a business sale. This process involves clearly defining and documenting all IPs, including patents, trademarks, copyrights, etc., to be transferred as part of the sale. This must be done in compliance with all applicable laws and regulations.
Selling your business can be challenging – physically, mentally, and emotionally especially if you’ve poured your heart and soul into building it up. But when you finally close the deal, when the fruits of your labor are firmly in your bank account, trust us, it’s all worth it.
This content was originally published here.
