1. Reasons for the Sale
You've decided to sell your business. Why? That's one of the first questions a potential buyer will ask.
2. Timing of the Sale
Prepare for the sale as early as possible, preferably a year or two ahead of time. The preparation will help you to improve your financial records, business structure, and customer base to make the business more profitable. These improvements will also ease the transition for the buyer and keep the business running smoothly.
3. Business Valuation
Next, you'll want to determine the worth of your business to make sure you don't price it too high or too low. Locate a business appraiser to get a valuation. The appraiser will draw up a detailed explanation of the business's worth. The document will bring credibility to the asking price and can serve as a gauge for your listing price.
4. Should You Use a Broker?
Selling the business yourself allows you to save money and avoid paying a broker's commission. It's also the best route when the sale is to a trusted family member or current employee.
In other circumstances, a broker can help free up time for you to keep the business up and running, or keep the sale quiet and get the highest price (because the broker will want to maximize their commission). Discuss expectations and advertisements with the broker and maintain constant communication.1
5. Preparing Documents
Gather your financial statements and tax returns dating back three to four years and review them with an accountant. In addition, develop a list of equipment that's being sold with the business. Also, create a list of contacts related to sales transactions and supplies, and dig up any relevant paperwork such as your current lease. Create copies of these documents to distribute to financially qualified potential buyers.
Your information packet should also provide a summary describing how the business is conducted and/or an up-to-date operating manual. You'll also want to make sure the business is presentable. Any areas of the business or equipment that are broken or run down should be fixed or replaced prior to the sale.
6. Finding a Buyer
A business sale may take between six months and two years according to SCORE, a nonprofit association for entrepreneurs and partners of the U.S. Small Business Administration. Finding the right buyer can be a challenge. Try not to limit your advertising, and you'll attract more potential buyers.
Once you have prospective buyers, here's how to keep the process moving along:
Get two to three potential buyers just in case the initial deal falters.
Stay in contact with potential buyers.
Find out whether the potential buyer pre-qualifies for financing before giving out information about your business.
If you plan to finance the sale, work out the details with an accountant or lawyer so you can reach an agreement with the buyer.
Allow some room to negotiate, but stand firm on a price that is reasonable and considers the company's future worth.
Put any agreements in writing. The potential buyers should sign a nondisclosure/confidentiality agreement to protect your information.
Try to get the signed purchase agreement into escrow.
You may encounter the following documents after the sale:
The bill of sale, which transfers the business assets to the buyer
An assignment of a lease
A security agreement, which has a seller retain a lien on the business
In addition, the buyer may have you sign a non-compete agreement, in which you would agree to not start a new, competing business and woo away customers.
A business broker often charges an average of 10% for businesses under $1 million; while that may seem steep, the broker may also be able to negotiate a deal that is better for you than the one you would have arranged by yourself.
7. Handling the Profits
Take some time—at least a few months—before spending the profits from the sale. Create a plan outlining your financial goals, and learn about any tax consequences associated with the sudden wealth. Speak with a financial professional to determine how you want to invest the money and focus on long-term benefits, such as getting out of debt and saving for retirement.
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