Selling your business isn’t something that can be done on a whim. You need to understand your competitive position in the marketplace, plan ahead and take steps to command the asking price you want and make sure you’re dealing with an appropriate, qualified buyer to weather the journey of selling your business. Take a look at this clear, well-defined process to make sure you’re not missing any steps.
Determine Your Business’s Value
You can establish a ballpark figure by estimating value based on your profits – most small businesses are valued at three to six times their cash flow. But you’ll also want to get a third-party appraisal of your company’s value before you set your asking price. A business appraiser will consider all the salient factors: your sales, receivables, inventory, assets and debts. They’ll also consider your business in the context of your competitive environment. The result? An appraisal that lends credence to your asking price.
Tidy Up Your Financials
Your buyer will want to perform due diligence on everything, and that includes your company’s books. Work with your accountant to make sure you’ve accounted for all income and expenses cleanly for the past three to four years. Your buyer is likely to ask for tax returns, financial statements, your current lease, lists of equipment being sold with your business, a current operating manual and even year-to-date results.
Choose Your Business Broker
Would you go to court without a lawyer? Most business owners would consider trying to sell a company without a business broker just as foolhardy. Think about everything a business broker does for you. Your broker will:
- Perform the business appraisal
- Prepare a prospectus
- Locate potential buyers through networking, marketing, etc.
- Negotiate the best price
- Help prospective buyers find financing
If you don’t have the skills or contacts to perform all these tasks – not to mention the time for the single-minded focus it takes to sell a business – bringing on a business broker is a must on your business-selling to-do list. Yes, the broker will charge a standard commission, but the value they bring to the process is typically well worth it because most companies get a higher appraisal when a broker is involved.
The best place to find the right business broker for you is LINK. We have brokers who focus on various industries who understand your needs, business and marketplace.
Find Your Buyer
This key step in selling your business is sometimes easier said than done (which is one reason a business broker can be so vital). Selling a business can take anywhere from six months to a couple of years, in part because your buyer is going to want to take the time to perform their own due diligence.
You can save yourself potential heartbreak and a broken deal by pre-qualifying your potential buyers. After all, a great offer is worthless if it’s not backed up by the ability to complete the deal. The bank providing financing will want the buyer to put up some of its own money for the sale, and you may want to make sure the buyer fits into the company culture you’ve worked so hard to establish. Make sure as well that any prospective buyers sign a Confidentiality Agreement to protect your company’s proprietary information, just in case the deal doesn’t close.
Once your buyer is in place, if you’ve valued your company properly and have all your documentation in order, the end of your deal should be in sight. Getting to closing will still take a fair amount of time, though – and if you’ve poured a lot of yourself into building the business, the process may be more of an emotional journey than you think. Working with your professional business broker can help in dealing with any final hiccups to make sure you cross the finish line successfully.
