For every successful small business there’s a person who put in the long hours and invested time and resources heavily in it. In the process, the investment represents all the tears, stress, struggles, challenges and sacrifices that have been invested in the company over the years. Now that the business is doing well and every little matter settled it makes the final decision to let the business go really hard to make.
It’s never easy to sell any business, small or otherwise. The process is tedious and complex in terms of logistics, best practices and even personal emotions for the owners and investors involved. Once you’ve made up your mind to sell it, there’re a number of things to pay attention to before you begin.
Here are 8 unique steps you need to be aware of to help you sell the business smoothly and resplendently.
First Step: Spruce up your bookkeeping
Firstly, your bookkeeping shouldn’t just be good but superb and your financial records spotless. Of course, it helps to simplify matters when all the required financial documents are retrievable. Also, well-kept records can help you get the best out of the deal. The fact that you’ve decided to sell your business means that every person involved in the process, from potential buyers, accountants and auditors, valuators to lawyers will have their full concentration on your financial records.
If you’ve not been doing amicable bookkeeping it’s time you started before you even think about commencing with the sale. In case you don’t have one get yourself an experienced accountant to help your company clean up its financial records.
Many business buyers request financial statements of the last three or so years. You don’t want them to find gaps in the business income and lost funds that cannot be accounted for. Every buyer out there want to invest their money on a company that’s not just making a profit, but also thriving; only financial information makes this abundantly clear.
Second Step: Come up with a proper price range
It’s very important to be clear about what you want from the sale of your precious company. However, you must at all times ensure that you don’t scare away potential buyers by pricing the business too high. That is why proper bookkeeping (along with financial planning) is key; helps you see what the company is really worth. All the financial information and other records will help you come up with a proper and realistic price range.
For instance, assets can be used to set up the price plus a good amount for what the business has become. Also, do your due diligence and compare from your locality and industry how much you should expect from other similar business sales. Whatever you use, try to be as realistic as possible.
Consider seeking an appraiser to come up with a precise range. A proper valuation company will help you ascertain the precise value of your company based on diverse factors such as debt, inventory, revenue, sales or even invoices outstanding. Also, in case the potential buyer was to argue about the value of the business, the professional valuators used will shut them up.
Related: Online Business Valuation Calculator
Third Step: Mind the tax involved
Obviously, you’re expecting to pay up some taxes in relation to the business sale. You should expect taxes to take away from your expected revenue. To be on the safe side, do your due diligence to know what to expect and whether there are ways of lowering a tax burden that’s way too heavy. You might have to seek the aid of a tax expert to navigate the murky pond of taxation.
Note that the way you’ve set up your company will determine the tax owed. For instance, in case of an LLC or a corporation the decision to sell the business and/or its assets will also affect the tax. Most partnerships and sole proprietorships sales are considered asset sales just like most LLCs and corporations out there.
Fourth Step: Exit strategy
Don’t let the complex process of selling your business dissuade or keep you from crafting an exit strategy for yourself. You must know what you intend to do once the company is sold. You might want to remain as a manager or part with the business and leave it in the hands of another. What this means is that without an exit strategy you could end up worse off.
Take some time to think how your decision to sell the business will affect your ability to cater for your family and other essentials. In the contingency plan you devise for yourself think about the person you intend to run the company, issues that could come up and how to troubleshoot them and to have a clear picture of the funds you need to make from the sale to sufficiently help you move on.
Fifth Step: Prepare accordingly to safeguard your confidential documents
You real don’t know who is a genuine buyer and who isn’t. Some offers might come from your competitors or detractors seeking to access your sensitive financial information and business records for nefarious use. To manage how your documents and other details are accessed and what the entities looking at them can do with the information, do think about a nondisclosure agreement.
With such an agreement you’ll be preventing anyone accessing the information from using it the way they want or sharing it with other entities out there as far as the nondisclosure agreement is active.
If you don’t have a lawyer yet, go ahead and find a good one to help with the arbitration process. For instance, most attorneys at law only allow entities to access their client’s information only within their premises. In the process, unsupervised and illegal prying on confidential documents is curbed.
Sixth Step: Find potential buyers and negotiate
If you’re well known or perhaps your business has been doing good and known throughout the industry you might not have to actively seek potential buyers. Just a word of mouth might be sufficient. You can also use your clients, staff or friends to find buyers, or reach a huge chunk of the population via self-service business-for-sale portals like ExitAdviser, and local newspapers.
There are end-to-end online frameworks where you get expert help to do everything from planning and preparing for the sale, to promoting and negotiating the deal. Business brokers can also be used to help find more prospective buyers and to manage the process to avoid publicizing the sale so much.
The negotiation process will then be easy once you find a potential buyer where issues such as what assets will be sold or not and the payment method to be used.
Seventh Step: Cover all loopholes with a sales agreement
Getting the deal closed is important and so is signing a well-done sales agreement. You should include a lawyer to help you draft one or take the document to an experienced legal mind to review it for you. That way, you should be able to cover every little thing that should be included. This includes the assets being bought and their value, contracts being assumed, guarantees and other legally-binding protections and clauses.
Eighth Step: Closing and tax filing
In this last step you’ve negotiated, entered into a sales agreement and just about to transfer your company to the new buyer. Make the closing process smooth and fast by ensuring you’ve all the legal documents around as well as orders and items that should be turned over to the new owner, such as keys, alarm codes etc. Once everything is signed and payment accepted and transferred don’t ignore the tax part. In most jurisdictions, the buyer and seller of a business need to fully file a tax form jointly and then ensure it is filed together with their annual tax returns.
The pros isn’t as simple as detailed here; complex issues crop up all the time. Most importantly though, you might want to ensure you receive payment for the sale upfront and refrain from accepting installments. The new owner could run the business down and refuse to honor the remaining installments or just take too long complete the payments. Above all, avoid walking the entire process alone without an exit adviser to help you maneuver and find the best buyer for your business.