How to Sell a Business

Last Updated:
June 7, 2022
Author:
Mike

How to Sell a Business

When it is time to sell your business, you must have a clear idea of the market. Understanding the market can help you to set a realistic asking price, and offers an idea of the competitive position of the business. Selling a business requires careful planning, from cleaning up bookkeeping tasks to deep cleaning the property itself. Below are the steps on how to sell a business to ensure you get the most out of your initial investment.

1. Determine the Value of Your Company

Hiring a qualified valuation expert can help you appropriately review your business and its competitive environment. This review considers all factors from sales to receivables. However, they will also consider any inventory, assets, debt, or liens. The review will identify any business threats or opportunities. Additionally, they can provide a realistic estimate of what the business is worth right now.

Typically, small businesses are worth three to six times more than their annual cash flow. However, this varies due to overall financial health, industry trends, location, and market demand.

2. Clean Up Your Finances

Prospective business buyers are looking for as much transparency as possible. Thus, they are taking more care and using due diligence when researching a potential purchase. To help sell your business without issue, hire an accountant to present clean financial statements for potential buyers. The accountant can double-check business tax returns and other details for the past few years and create a simple income report. You should also ensure you have a current year-to-date statement in case potential buyers are curious.

3. Boost Your Sales

Often potential buyers want to see that the business has increasing sales. Therefore, it is within your interests to ensure sales increase or remain steady as your prepare to sell. After all, you will likely lose money on the sale if sales are down, as the risk is higher for the new buyer. Consider diversifying your customer base or increasing marketing and promotions. However, you should do this several months before selling, so there is a history of increasing sales, not a single month with a boost in sales.

4. Find a Business Broker

Enlisting the help of a business broker can help you sell your business faster and with less stress. Many brokers will also have their own business valuation experts which can save you money overall. Business brokers also have a large network of connections, for financing, listings, and potential buyers. This allows your business to sell faster, and without financial issues. Their background in deal-making means you can get the best possible price, and likely will only pay a 5 - 10% commission.

5. Get Business Contracts in Order

There are many legal factors to consider during the sale of a business. Among these are the asset purchase agreement, and the legal sale contract. You must also consider the purchase of business assets, and what this covers. Will it just be physical assets or will it include intellectual property as well? This will be a comprehensive document, typically 25 – 50 pages long that you must review carefully. It should also include asset listing, employee agreements, mobile apps, business guidelines, website domain passwords, logins, etc. Confirm if there will be any cross-over period to transition the business to the new owner, and how long that will be.

In the coming decade, many businesses will likely change hands as people retire, or change industries. The most important thing to remember as you sell your business is to be prepared. Ensure you follow the steps above for a seamless sale and transfer of your business.

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