7 Steps To Selling Your Small BusinessWe recently shared 5 Tips to Successfully Sell Your Company but today, we are focusing on 7 additional tips and takeaways for selling your small business. When it comes time to sell your small business there can be many hoops that you may need to jump through, requiring a lot of time and effort. Continue reading to learn 7 steps to help streamline this process. 

Selling a small business is a complex venture that involves several considerations. It can require that you enlist a broker, accountant, and/or an attorney as you proceed. Whether you profit will depend on the reason for the sale, the timing of the sale, the strength of the business’s operation, and its structure.

The business sale will also require much of your time and, once the business is sold, you’ll need to determine some smart ways to handle the profit.

 

Key Takeaways

  • Selling your business starts with identifying your reasons why, making sure your business is in the shape it needs to be in to be sold, and the timing of the sale.
  • Preparing for the sale at least a year or more in advance is critical, as it gives you time to improve your financial records, customer base, and other factors that can make the business more successful.
  • Determine the value of your business so that you can price it appropriately. Consider hiring a business appraiser.
  • Make a decision as to whether you’d rather use a business broker, or negotiate the sale yourself.
  • Organize your financial statements and tax returns dating back a few years and go over the details with an accountant.
  • Finding a buyer is a huge undertaking that could stretch out several years. Once a good buyer is found, there are a series of financial screenings and other steps that need to be taken to keep the process moving.
  • Don’t spend the money all at once. Take the time to work with a financial professional and determine how you want to invest or otherwise use the money.

 

1. Reasons for the Sale

You’ve decided to sell your business. Why? That’s one of the first questions a potential buyer will ask.

Owners commonly sell their businesses for any of the following reasons:

  • Retirement
  • Partnership disputes
  • Illness or death
  • Becoming overworked
  • Boredom

Some owners consider selling the business when it is not profitable, but this can make it harder to attract buyers. Consider the business’s ability to sell, its readiness, and your timing.

There are many attributes that can make your business appear more attractive, including:

  • Increasing profits
  • Consistent income figures
  • A strong customer base
  • A major contract that spans several years

 

2. Timing of the Sale

Prepare for the sale as early as possible, preferably a year or two ahead of time. The preparation will help you to improve your financial records, business structure, and customer base to make the business more profitable. These improvements will also ease the transition for the buyer and keep the business running smoothly.

 

3. Business Valuation

Next, you’ll want to determine the worth of your business to make sure you don’t price it too high or too low. Locate a business appraiser to get a valuation. The appraiser will draw up a detailed explanation of the business’s worth. The document will bring credibility to the asking price and can serve as a gauge for your listing price.

 

4. Should You Use a Broker?

Selling the business yourself allows you to save money and avoid paying a broker’s commission. It’s also the best route when the sale is to a trusted family member or current employee.

In other circumstances, a broker can help free up time for you to keep the business up and running, or keep the sale quiet and get the highest price (because the broker will want to maximize their commission). Discuss expectations and advertisements with the broker and maintain constant communication.

 

5. Preparing Documents

Gather your financial statements and tax returns dating back three to four years and review them with an accountant. In addition, develop a list of equipment that’s being sold with the business. Also, create a list of contacts related to sales transactions and supplies, and dig up any relevant paperwork such as your current lease. Create copies of these documents to distribute to financially qualified potential buyers.

Your information packet should also provide a summary describing how the business is conducted and/or an up-to-date operating manual. You’ll also want to make sure the business is presentable. Any areas of the business or equipment that are broken or run down should be fixed or replaced prior to the sale.

 

6. Finding a Buyer

A business sale may take between six months and two years according to SCORE, a nonprofit association for entrepreneurs and partners of the U.S. Small Business Administration. Finding the right buyer can be a challenge. Try not to limit your advertising, and you’ll attract more potential buyers.

Once you have prospective buyers, here’s how to keep the process moving along:

  • Get two to three potential buyers just in case the initial deal falters.
    Stay in contact with potential buyers.
  • Find out whether the potential buyer pre-qualifies for financing before giving out information about your business.
  • If you plan to finance the sale, work out the details with an accountant or lawyer so you can reach an agreement with the buyer.
  • Allow some room to negotiate, but stand firm on a price that is reasonable and considers the company’s future worth.
  • Put any agreements in writing. The potential buyers should sign a nondisclosure/confidentiality agreement to protect your information.
  • Try to get the signed purchase agreement into escrow.

You may encounter the following documents after the sale:

  • The bill of sale, which transfers the business assets to the buyer
  • An assignment of a lease
  • A security agreement, which has a seller retain a lien on the business

In addition, the buyer may have you sign a non-compete agreement, in which you would agree to not start a new, competing business and woo away customers.

 

7. Handling the Profits

Take some time—at least a few months—before spending the profits from the sale. Create a plan outlining your financial goals, and learn about any tax consequences associated with the sudden wealth. Speak with a financial professional to determine how you want to invest the money and focus on long-term benefits, such as getting out of debt and saving for retirement.

 

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Original article published on investopedia.com

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