Selling a small business requires careful planning. It involves many considerations, such as evaluating industry trends and economic factors, and determining the best time to sell your business.
It also includes preparing your financial records for sale, verifying profit and loss statements, arranging credit references, and getting your tax affairs in order.
1. Prepare Your Business for Sale
Selling a business is a major undertaking that takes time and effort, both personally and professionally. The key to successfully managing the process is to stay focused on the step you’re in and your long-term objective. Otherwise, you risk making short-term decisions that go against your ultimate plan.
Work with an experienced business broker and a team of professionals to prepare your company for sale. They understand how real-world buyers evaluate businesses and can help you prioritize tasks and identify areas for improvement.
Be sure to clean up your QuickBooks account, review your financial statements and tax returns over the past three to five years, and dig into economic trends to determine whether your business is sustainable. Also, be sure to develop repeatable and teachable processes and empower your management team so they can continue driving business growth after you sell the business. This will enhance your bargaining power with potential buyers.
2. Find a Buyer
A buyer with the right skills, interests and enthusiasm is essential for a successful business sale. A seller’s instinct can play a role in this decision, but more important is having a methodical approach to screening and qualifying buyers, and enlisting the assistance of professionals to facilitate the process.
Start by collecting a list of potential buyers and their contact information, ideally through a third party to preserve anonymity. Market the business for sale in your industry through local advertising, business networks, and industry events, as well as on online marketplaces like BizBuySell.
Be ready to respond quickly to inquiries, and share information about your business with financially qualified buyers, including a copy of the CIM and normalized financial statements. Insist that potential buyers submit an LOI before entering into negotiations, and have a professional involved to help you manage the sales process. Identifying and qualifying buyers requires strong communication and negotiation skills. Be persistent, and accept only offers from serious buyers.
3. Negotiate the Sale
The sale of your business is a complicated process. It’s important to have a broker who is experienced in the process to guide you through it.
A qualified broker will understand your needs and goals and help you to negotiate the best deal for you. They will also help you set clear objectives that will serve as your anchor throughout the negotiations.
Entering the negotiation process without a clear understanding of your business’s value is like sailing into unfamiliar waters without a compass. A thorough business valuation and research will ensure that your asking price is both competitive and realistic.
Be prepared to answer questions from potential buyers about your business’s financial records, legal documents, and contractual agreements. You may need to negotiate indemnification clauses, which will limit your post-sale liability, and conditions precedent, which are terms that must be met before the sale can proceed. Be transparent and honest with your answers to avoid any misunderstandings. At this point, it would be best to sell a small business through a broker.
4. Close the Sale
After months of preparing, schmoozing with potential buyers, and negotiating the sale of your company, it will be difficult to see your business pass into another owner’s hands. Fortunately, having a plan for what you will do next can help mitigate some of the negative emotions that come with closing.
Closing includes completing the legal sale process, which involves a sales agreement. This document allows for the purchase of all assets, including inventory and intellectual property, as well as any liabilities tied to your business. This is an important document, and hiring a legal professional to prepare it can ensure your interests are protected.
Closing also includes handling financial aspects, such as cancelling your Employer Identification Number and settling outstanding taxes. It is also necessary to notify clients, suppliers, and employees of the change in ownership. This can have an impact on the business’s ongoing relationships and reputation, so it is a critical step. Lastly, it is necessary to close any bank accounts tied to the business.
