Tips to Sell Your Business
Thinking about selling your business one day? Whether that day is coming soon or it’s years away, it’s important to know what you’ll have to do to sell so you can be adequately prepared. And while every sale is different, there are common questions and processes for selling most small businesses.
The first thing you should do is ask yourself these three questions:
- Can my business be sold? Do I have a competitive advantage, solid history of growth and profitability, a large base of loyal customers, a desirable location or workforce? If your business is strong in one or more of these factors, there could be potential to sell.
- Am I ready to sell – financially and emotionally? Think about how your personal and work life will change as a result of the sale. Also think about your current mindset regarding the business. Is it still fun? Do you want to continue investing in its growth? Is it still manageable?
- What’s my business worth? It’s very common for business owners to lack a realistic view into what their business is worth. The most common way to figure this out is to use a multiple of your discretionary earnings, which requires you to recast profit-and-loss statements by adding back your salary, benefits, and non-recurring expenses. You’ll then use this number to compare with data for businesses like yours to arrive at an appropriate multiple.
If you’ve answered these questions and still want to sell, you’ll need to prepare to do so. Qualified buyers do their research and they’ll ask you to produce records and other information that you should have on-hand. Being prepared to hand over these documents helps to show that your business is in order and that you’re serious about selling.
Here’s what you’ll need to prepare before you go to market:
- Previous three years’ profit-and-loss statements
- Previous three years’ balance sheets
- Year-to-date profit-and-loss statement
- Current balance sheet
- Previous three years’ full tax returns
- List of furniture, fixtures, and equipment
- Inventory list
- Commercial property appraisal or lease agreement
- Other documents you may be asked for: insurance policies, employment agreements, customer contracts, patents, equipment leases and bank statements
After you have these documents in order, you’ll need to find and qualify a buyer. To do this, list your business online and in any other local or national hubs that could get your business seen by potential buyers. Then, create a “blind profile” and a prospectus to use as marketing materials. The blind profile can be sent to anyone who inquires about your business and the prospectus should be sent only to serious buyers who’ve signed a confidentiality agreement.
Once you have a potential buyer, the last thing to do before negotiating a deal is to be sure the buyer is qualified. To avoid wasting time with buyers who ultimately won’t be able to make the purchase, request that interested parties send the following information so you can vet them before moving forward:
- Full name and contact information
- Previous employment and business ownership
- Educational background
- Proof of funds available to invest and sources of financing
- Minimum monthly income requirement
- Intended timeframe for completing a transaction
- Reason for interest
When you have one or more qualified buyers that have made viable offers for your business, it’ll be time to negotiate. While anyone would hope to get an all cash offer, that rarely happens, so be prepared to get creative and forge the best deal possible for all parties. Before signing off on an offer, be sure to have an accountant review the deal and educate you on any financial implications.
Bottom Line
There’s a lot that goes into selling a business and it can be stressful. The information in this article will provide a great start for deciding to sell your business and preparing to do so. Remember to be realistic while completing your valuation and when evaluating offers. If at any time the process gets to be too much to manage or you’re just not comfortable moving forward without the help of an experienced professional, give us a call. We have several programs that can meet most owners needs at a budget that makes sense.
