Yes, your business might be small. However, selling it is a very complex process, and there are several considerations that you should make. Mostly, you will need to enlist the services of professionals like a business broker, attorney, and accountant for the process to be successful.
However, the deal that you get out of the entire process will depend on several factors, like:
- The reason you are selling the business
- Financial standing of the business
- Business structure and operation
- Timing of the sale
Please note that selling a business is a time-consuming process, and you will need to dedicate most of your time to this. And, once you sell the business, you must plan how to manage the profit. With that said, let’s look at the top hints that should guide you when selling a small business.
Value your business
This is where you need to start when selling a small business—you need to know the exact value of your business. Typically, this is a very complicated process, which involves business revenue, debts, expenses, as well as other responsibilities that accumulated over the years of operation.
Besides, there’s the reason for selling the business. If a competitor is looking to expand their market, they might be willing to pay you more.
Here are a few methods to help you in valuing your business:
- Asset method – this method determines the difference between your assets and liabilities.
- Income method – this is a more comprehensive approach, which assesses numerous factors, like income statements, cost structure, forecasting, as well as growth factors.
- Market method – this involves assessing competitors, as well as other sales factors to come up with an estimate.
Please note that the right valuation method will depend on your business structure and goals. This is where financial and legal experts come in.
Seek financial and legal expertise
Whatever the reason for selling your business, it’s important to hire legal, financial, tax, as well as a business broker. This ensures that the entire process goes smoothly. Make sure that you have the right resources, as most details that you might not be prepared for will crop up.
The experts that you bring on board will assist you to make the right decisions to get the best deal out of the sale. One thing with third-party professionals is their neutral approach to things. Since they don’t have any emotional connection to your business, their tactics will always support coherent decision-making.
Create an exit strategy
Most people forget this step. However, it’s important to know what is next after you sell the business. Besides, it’s important to have a contingency plan in the event you are forced to part with your business unexpectedly or you get into a situation where selling your business is the best option.
When creating an exit strategy, you need to factor in the following things:
- The succession plan for the person who will take over the daily operations of your small business in case you sell it
- A good understanding of the possible pitfalls or challenges, and how to manage or correct them
- A good sense of how much you must make from that sale to cover your finances
Put your financial records in order
In case you mixed business expenses with your personal expenses, it’s time to put them in order. Although it’s not strange for small business owners to run their personal expenses through their business, this habit can present a distorted financial image to prospective buyers.
With that said, you need to have clean financial statements (for at least three years) to present to your prospective buyers. When preparing these records, make sure that all the income is accounted for. Besides, you will need to have a working bookkeeping solution ready—this should guarantee the new owners that your financial information is up to date.
Get your paperwork ready
Other than your financial records, you will need to prepare other legal documents when selling a small business. One of the most important documents that you must prepare is the Asset Purchase Agreement. Typically, this is a contract for selling both the intellectual and physical property of your business.
The document has around 25 – 30 pages and includes your financial records. Mostly the purchase agreement will indicate your responsibilities as the former owner—and you might be obligated to stay on the business for some to consult with the new management.
At times, a non-compete might be required. This states that you don’t plan to start a new business that would compete with the old one you’ve sold. Preparing such a document is not easy. That’s why you need to enlist the services of an attorney to take care of it.
Find a buyer
It takes an average of 6 – 24 months for one to sell their business. Thus, it’s important to understand that it won’t be that easy to find the right buyer for your business, but a Business Broker from Orlando can help you during this process. However, you shouldn’t limit your marketing strategies, as this is the best way to attract potential buyers.
These steps will help keep the process moving once you find prospective buyers:
- Find at least three prospective buyers in case the initial deal fails
- Always keep in contact with your potential buyers
- Always check if your prospective buyers pre-qualify for financing before sharing any information about the business
- If you want to finance the sale, consult with your accountant or attorney before reaching out any deal with the prospective buyer
- All agreements should be in writing