Setting up and running a business is a hard-earned endeavor, and while no one prefers to sell their business, it is indefinitely a much better choice than liquidation, bankruptcy, or closure of a business.
Business for a company or an individual holds immense importance as it becomes a staple of livelihood for all the people involved. However, there can be many reasons for the upper management or the company's owner to decide to sell their business.
A recent study by Benchmark International provided some fascinating statistics about buying and selling of a business.
- 90% of an owner's wealth is tied up in their private enterprise, and only 30% of all the family-owned firms survive the second generation.
- More than 50% of business persons will try to sell their business themselves, while approximately 50% of the agreed business contracts never come to closure because of pitiable planning and poor handling of the situation.
- There are around 15 prospective buyers on an average for every business listed in the open market.
How to sell your small business fast: Ten things to keep in mind
With that out of the way, let's take a quick look at some of the basic measures that you should take while selling your business.
1. Plan Ahead
While managing day to day operations may prioritize, business owners need to understand that planning to sell their business plays a vital role in successful outcomes. A successful business exit takes years of preparation, so one should consider planning early on as it will help you take the right steps.
Here are some tips for you to plan ahead:
- Buyers would often take a forensic approach to examine a company and look for data that is three years prior to your decision to sell. Hence it would help if you stayed on top of all key accounting, financial, and legal matters. This can include tax compliance, payroll taxes, and record of revenue in accordance with GAAP.
- Ensure that your business issues are disclosed as you don't want the buyer's due diligence team to find skeletons in the closets. Better yet, work on them and overcome them completely.
- Methodically plan to sell to the right buyers, as this will help you to maximize your business potential and its value in their eyes.
- Determine the driving value that could help your targeted buyer to consider your proposal as attractive as possible.
- There are always limitations, and as a seller, you should always know your walk-away figure better than anybody else.
2. Good Reasons to Sell
Is there a good reason to sell a business? Honestly, there are reasons, but whether they are good or not can still be debatable.
Video: What are the real reasons Business Owners sell their businesses? | Zoran Sarabaca · Xcllusive Business Brokers
Some common reasons for selling your business include burnout, industry changes, deplorable revenues, irreconcilable conflicts & disputes, lifestyle changes, and different new opportunities.
However, your buyer could ask one of the most potent questions to provide them with a good answer to why you are selling your business. You simply cannot tell them all this. Here are some plausible replies.
- Family obligations have taken priority.
- You are looking to retire early.
- Personal health implications.
- Boredom and wanting to find something new.
- A boom in the market and terrific offers from buyers.
3. The Timing of the Sale
While you spend years of effort into nurturing a business, in all frankness, one could never really tell the best time to sell their business. However, there are some indicators that can help you understand a good time to sell your business.
These can include:
- Consistent history of growth along with a relatively large growing trend in recent years since buyers are interested in this key factor.
- The study of the market pertaining to recent selling and buying of similar businesses like yours will provide you with a better idea of how you will perform against them.
- Other market factors include a high sales volume, an upward trend for prices, strategic acquisitions, relatively low taxes, affordable financing options, and low business debt.
- Your own emotional preparedness to part ways with your creation.
4. Market / Promoting the Deal
Networking is the gold standard when it comes to marketing your business for sale. This is because you will come across a lot of potential buyers that you are closely acquainted with, and there is going to a certain level of familiarity between you and them.
If you want to get the best deal for your business, then you definitely need to promote your business for sale. This would require optimizing your business for buyers and their preferences. Include and share viable information that makes your businesses attractive to them.
Share accomplishments, milestones, breakthroughs, and other factors that give your business an edge over competitors. Likewise, you can also hire a business broker who could increase your chances of meeting with the best prospects out there.
5. Business Valuation
Before you sell your business, you need to perform a valuation for your business. This process entails determining the economic value of your business or company. To calculate your business' market value, you can do the following:
- Measure your total business assets' value, including inventory, equipment, machinery, tools, and even software or intellectual properties.
- Your business' balance sheet is a good starting point to determine business worth.
- Revenues, annual sales, and other incomes that your business is able to generate over a period of time.
- You will also be required to perform a discounted cash-flow analysis, which includes your business' annual cash flow and projects using the net present value calculation.
- Also, take into account other factors such as cutting edge technology, geographical location advantages, and strategic synergies.
6. Selling by Yourself vs. Using a Broker
There are several deal-professionals out there that can help you lead the sale process and mitigate any harm the process of selling can incur on your business and day-to-day operations.
A team of professionals can also help make adequate arrangements, including the likes of M & A attorney, CPA, and investment bankers, to name a few.
However, the question arises whether you would prefer to sell your business by yourself or through a broker.
When you sell by yourself, you actually get away with paying additional fees of professionals from M & A's likes. However, there is a huge concern for privacy since you might lose key employees if the word gets out.
Video: Selling A Business Yourself vs Using A Business Broker | Advantage Business Sales & Valuations
Deciding to sell a business through a broker may cost you a percentage of your sale amount, but at the same time, they can provide you with possibly better prices. Brokers also help you manage your time more effectively, plus they can help you with various legal, financial, and tax-related concerns as well.
7. Screen Out Persons You Don't Want to Sell
Selling your business requires an understanding of buyers as to who qualifies and who doesn't. As such, you will be required to evaluate each buyer based on their credibility, financial status, past performances/track record, reputation in the market, public rapport, and legal affairs.
Furthermore, you need to be aware of competitors who may pose as buyers to gather marketable insights and sharks that look for overly anxious business owners. This is why it is absolutely necessary to be clear on the attributes that you want in your buyers.
This can include business experience, professional certifications, financial standings, ability to provide collateral, and timeframes they will be willing to cooperate. Even if you pay for essay, it is important to evaluate the authenticity of the service providers.
8. Preparing Documents
There will be a need to prepare legal documents to assist you in selling your business. These include:
- Accounts Payable and Accounts Receivables Aging Reports
- Financial Statements for the Present and past Three Years
- Inventory List and Value Details
- Non-Disclosure Confidentiality Agreement
- Note of Seller Financing
- Offer-to-Purchase Agreement
- Personal Financial Statement from Buyer to Complete
- Statement of Seller's Discretionary Earnings and Cash Flow
Apart from the above mentioned, you will also be required six additional documents:
- Letter of Intent from buyer to seller
- Buyer's Due Diligence
- Purchase Agreement
- Buyer's Method of Payment
- Transfer of Ownership
- Compliance with Local and State Laws governing buying and selling of a business.
9. Finding the Right Buyer
A buyer will follow up with due diligence on their behalf to judge and examine your company or business that is available for sale. Why would you not take this opportunity to do the same for them? It is only fair that you follow up with due diligence for them as well.
According to a study by a assignment writing service in the UK, finding the right buyer for your business is essential for a smooth transaction.
Buyers of business can be broadly categorized into three main categories, namely Financial, Internal, and Strategic Buyers.
- The financial buyer is interested in free cash flows, growing revenues, and strong systems along with management teams.
- Internal buyers want solid balance sheets, good corporate values & cultures, diverse product lines, and strong financials
- Lastly, we have strategic buyers who favor growing profit-based trends, a robust product or service, technological advances, along with market share and brand recognition.
So prepare your business beforehand to meet up with the right prospects.
10. Handling Profits
Many skeptics out there would strongly advise from making use of profits from sale readily after the deed is completed. Take some months before spending profits. In fact, you should be concerned with any taxable consequences associated with a sudden increase in personal wealth.
Furthermore, you can also seek professional financial advice to invest money for long-term benefits such as removing debt or saving for retirement.
Selling a business can be emotional for some, and for others, it is most definitely a time-consuming exertion. However, your level of preparedness can ease out discrepancies in the process and put you in a spot to make better and more expedient decisions.
The more guidance you have, the better you would be able to manage such activity.
Samantha Kaylee is currently occupied as an Assistant Editor at Crowd Writer. Whenever she has time on her hands, she would take her family and loved ones on a road trip.