How To Sell Your Business
Is It Time To Sell Your Business
If the time has come for your to sell your business so that you can move to other business or entrepreneurial ventures, there are several factors that determine whether the sale of your business will be profitable. Your business industry or trade and its marketability is a key component to determining a successful sale. The timing of and reason for the sale, the strength of the operation and structure and the overall profit margin of the business are all important factors that potential buyers and investors will consider before making a bid. If you consider these important factors and are aware of potential pitfalls, there is a greater likelihood that you can sell your business model for a great profit.
Determine The Value Of Your Company
Enlisting the help of a licensed business broker to provide a thorough business valuation is the essential first step to selling any business. For a set fee, a professional business broker will assess your business structure and compare it to its competitive environment. They will review assets and liens, payroll and accounting, debts, inventory, sales, clients, vendors, customers and receivables. While this may seem rather invasive, the intent is to protect you and your potential buyer by identifying pitfalls and threats to the business as well as highlighting value and opportunity in full disclosure.
A small to medium-sized business is typically worth about five times the annual cash flow. This varies greatly depending on the industry or trade, business location, market demand and trends and financial stability of the business. A business valuation performed by a professional broker will analyze all components of the business to determine risk and growth potential.
Prepare Financial Documents And Clean Up Your Business
Transparency is the key to selling your business in a timely manner to a well-qualified buyer. Enlist the help of a trusted accountant to begin the process of gathering important business-related documents, tax returns and financial statements. You will want to compile a list or manual for potential buyers that includes a breakdown of equipment to be included with the sale of your business, a list of existing clients or vendors, lease information, sales transactions, inventory and expense reports. A professional accountant will gather, make copies of and compile information pertinent to bank and financial records and tax documents to include in the manual or report. You should include all financial and tax documents dating back three years from the current date.
Boosting Your Sales
Just because you are preparing to sell your business, it does not mean you can become lackadaisical in terms of day-to-day operations and sales. Potential buyers want to see stability and the potential for growth. If business is in decline, it may not be the right time to sell your business. Focus on increasing your marketing and gaining new clients, vendors or customers to show potential buyers the growth in your business.
Buyers like to see diversity when it comes to clients and customers. They become leery when a small business has few clients that make up a large percentage of the overall profit margin. If that business is lost, the potential for profit plummets. Acquiring more clients evenly distributes the risk factor and increases the likelihood that your business will sell to a qualified buyer. You need to do whatever it takes to make your business appear as thriving and fresh. If that means you need to update equipment, bring in new clients and even hire some new employees with a fresh perspective, you need to commit to making the necessary changes that will reflect your company’s continued growth potential.
Finding The Right Buyer
This is arguably the most stressful component of selling your business. In the wrong or inexperienced hands, your business can potentially sink like a submarine. The first offer is not always the best offer. One way to weed out the potential for an unqualified buyer is by pre-qualifying the potential candidates. Third-party loan companies handle many small business loans and acquisitions. Do not be afraid to ask for references, have many phone calls and discuss credentials and intent with potential buyers. A third-party loan company can also help you determine which buyers are financially stable and able to run the business from the money side of things.
If you plan to finance the business, it is important to know that many loan companies will require you to front some of the expenses pertinent to the sale of the business. For this reason, you may want to avoid giving out sensitive information about your business until you are sure that all the boxes are checked with regard signing on the dotted line with a potential buyer. It is also wise to have a second or third qualified potential buyer on standby in case the initial deal falls through. The sale of a small business can take anywhere from a few months to a couple of years to complete, so you want to make sure you have done a thorough background and credit check on your potential buyers to ensure the successful continued operation of your business.
You may also want to enlist the help of an attorney to put any agreements and confidentiality clauses in place. A qualified financial attorney will also draw up any contracts, assist with liquidation and assets, clarify terms of the sale and the transfer of property, and finalize financial contracts. Attorneys are also helpful with financial negotiations. You should expect to negotiate your offer, but you should also be confident in the worth of your company and not be tempted to sell too quickly for far less than your company’s worth.
While you may be tempted to want to sell your business quickly, unpreparedness and hasty action almost always results in the loss of profit. Slow and steady wins the race when it comes to handing over your business to a new owner. With careful planning, a team of experts on your side and a dedication to the process, you can rest easy knowing you are passing on your business to a qualified and like-minded individual.