How to Not Go Cheap Selling Your Small Business

When starting out a business, it might have felt like a great experience and once it was up and running, you definitely had a sense of accomplishment. Due to some circumstances, business owners might need to sell their company to someone else.

That drastic change could be caused by family emergencies or if the owner retires and that’s just a few amongst many more reasons. Don’t make the mistake of thinking that selling a small business is a simple process, many businesses often settle for lower prices they didn’t intend on agreeing on.

To avoid making the same mistake, here are tips on how not to go cheap when selling your company.

Plan well in advance also don’t wait too long

Generally, you should develop an exit strategy when you are starting the business to give you ample time to start planning for the sale. It’s very important not to wait too long, that will help you start gathering the needed data and taking care of the books in preparation for the sale.

That long-term planning will help increase the value of the business because when buyers see that you carefully thought about this decision, they might be prone to paying higher.

Potential buyers will identify that this wasn’t a haphazard decision that was probably driven by that you are sick and tired of running the business. Also, the updated records you keep will give them a detailed report on the state of the business and how it has been doing over the years.

Video: The importance of an exit strategy |

Valuate the business

Some businesses often value their businesses arbitrarily and overprice them or set a very low price. When they overprice the business, they might end up getting very little than they bargained for.

To avoid giving yourself false hope, you need to value your business to get the exact price to charge. Getting a business appraiser will help you identify the actual price that you should be charging for the sale.

Unlike arbitrarily naming the price, a business appraiser will have documented evidence that supports the amount he indicated. When it is time to negotiate with the buyer, there will be something you can hold on to that will help you get a fair price. Valuating the business is an important step that shouldn’t be skipped when selling off your business.

Consider getting professionals on board

Selling your first business is uncharted territory, and obviously, you won’t have much experience on the matter. That makes you vulnerable to buyers that might want to buy your business for pennies on a dollar.

Due to that, involve professionals that have done this dozens of times before and know how to handle buyers that would want to take you for a ride. Although doing the work yourself will help you save a lot of money because you won’t pay a commission, it might not be the best option.

Try to get a reasonable broker that will charge you fair commission that will handle the majority part of the sale. Having a broker handling the sale will also free up time, which will allow you to keep the business up and running until the sale is concluded.

Be honest and transparent

Some businesses make the mistake of trying to paint their business as very successful and without any problems. The truth is, all businesses have some issues and the potential buyer probably knows that. Even if they do believe the smokes and mirrors you are trying to sell them, the buyers will get the opportunity to scour throughout your books.

If you were dishonest, you might lose the best offer you had and be compelled to agree to a lower price. Also, don’t try to hide problems with the assets or operations because that can lead to legal action being taken when those issues are later discovered. Honesty and transparency are the key factors of a successful transaction of the sale of a business.

Don’t disengage completely from the sale process

Once you have evaluated your business and set the asking price, you should notify the broker about those decisions. It is true that they will do the heavy lifting of selling the business but remember that they deal with many businesses.

As a result, they might not understand yours fully, so the responsibility of ensuring that they see the value of the business you’re running falls on you.

Don’t put the sale on complete autopilot after taking it to a broker. If you want the business to be sold at a fair price, take the initiative of ensuring that you market it in conjunction with the firm. Ensure that you don’t step on the toes of the brokerage firm by maintaining open communication throughout every phase of the sale.

Focusing on cash only offers

Cash only offers are quite unrealistic nowadays when selling a business. Unless a buyer applies for financing, it will be hard getting a deal that is worth your while.

Even in the latter case, the potential buyers will try to negotiate a lower price with the intention of taking out financing of a smaller amount. Also, getting a huge chunk of money will put you in a different tax bracket that can lower the overall money you get.

While spreading the payments across different months will help you avoid higher tax brackets. Lower tax will help you save money and get more from the sale of the business. The payment can even spread across multiple years and broken into smaller installments.

Related: How To Raise Your Asking Price With Seller Financing

Conduct due diligence before selling the business

The worst decision you can make that can lead to major financial losses is selling to the wrong person. Selling to the wrong person can result in unfulfilled payments due to a lack of financial capacity for making the transaction. Ensure that you vet the financial capability of the individual before selling off the business to that person.

Also, ensure that the person has the necessary skills to run a successful business to avoid the aftermath of the company being run to its knees.

Don’t have the mentality that you don’t care about what happens to the business once you have sold it. Remember that if you are taking installment payments, you rely on the success of the business to get the money.

Final thoughts

When selling off your business, you should have the intention of selling it for the best price possible. To do so, you need to ensure that you involve professionals to guide you throughout the whole process. Professionals you might need include a business appraiser and brokerage firm that will handle the majority of the work related to the sale.

Don’t make the mistake of just naming any price that comes to mind because it might be way cheaper than the market value or it could also be overpriced. Finally, don’t disengage once the professionals are involved, rather actively market the business to get more out of the sale.

Author Bio:

Leon Collier is an academic writer and blogger from UK, who writes about an array of topics: pop-culture, history, travel, self-development, education and marketing. His current job is with an service that provides assignment help to college students. When not writing, he spends time reading books in the local library.

Published by ExitAdviser


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