Selling your business can be complicated. You may need help from a broker, accountant, or lawyer. How much money you make from the sale depends on why you are selling, when you sell, how well the business is doing, how it is set up, how much time you spend in your business, and more.
To sell your business will take a lot of your time and after it is sold, you will need to think about what to do with the money you make. Here are seven important things to think about in order to create an exit strategy and make a successful sale.
Steps to Sell Your Business
Step 1: Prepare to Sell
The first thing to think about is why do you want to sell your business?
Here are some common reasons people sell:
- Health issues and feeling tired
- Wanting to retire
- Going through a divorce
- Partner dispute
- Growth issues
- Want more free time
- Unsuccessful business
- Other business interests
When getting ready to sell, try to make your business more valuable by:
- Getting less involved in daily operations
- Cutting out extra costs
- Reducing reliance on a few key customers or suppliers
- Increase sales
- Streamline operations and procedures
- Move stocked inventory
- Make sure your Financials are in order
- Remove unnecessary debt
Step 2: Set a Price
The exact price depends on how profitable the busines is, sales, its size, the industry, the type of buyer and other factors. You have three options to figure out how much your business is worth:
- Guess a price range yourself.
- Pay someone to appraise it.
- Hire a business broker to value it for you.
After you know the value, talk to your accountant to find out how much money you would get from the sale after taxes. This will help you decide if it is a good time to sell. Also, think about whether you want to sell your business real estate or possible take a partial equity buyout.
Step 3: List with a Business Broker
Would you look over all your legal papers by yourself or would you get a lawyer to help you? When you are ready to sell your business, it is a good idea to work with a skilled business broker who can help you reach your goals. Good brokers make their money by providing valuable support during the sale. In negotiations, just one chat between the broker and the buyer can make a big difference like gaining or losing $100,000. Brokers are aware of what prices businesses like yours are selling at and how much wiggle room there is in negotiations.
Step 4: Gather Documents
To make a buyer feel good, you should respond quickly to what they need. The best way to do this is by getting some documents ready ahead of time. Here are some things to collect before meeting:
- Financial details (P&Ls, Tax Returns, Balance Sheets, Payroll Summaries)
- List of equipment
- Permits and licenses
- Company rules and documents
- Create a FAQ for your business
- Current Lease Agreement
Step 5: Find a Buyer
If someone wants to buy your business without you listing, they probably will not offer you a fair price. To get the best money and deal for funding your business, it is a good idea to hire an experienced business broker. A broker will create a package to help buyers understand your business. This package usually has important information about your business. The following things are usually included:
Blind Ad: A short advertisement that provides just enough details to attract interested buyers which encourage them to reach out for more information.
CIM (Confidential Information Memorandum): A document that summarizes the business. It can be between 1 to 40 pages long depending on the brokerage.
Marketing Video: A video that shows potential buyers what your business is like.
After the buyer looks at the marketing materials, if they want to learn more, the broker will probably arrange a call with you and plan a face-to-face meeting for the most interested buyers. Later on, you will get offers to sell your business.
Step 6: Accept an Offer
You have put your business up for sale and some buyers are interested. Now it is time to get offers and choose one of the buyers. Before you accept any offer, remember your goals to sell a business so that you know what price and conditions you want. Below are some documents you might come across as you continue this process.
- IOI (Indication of Interest): A simple document that show basic financial terms about a deal and it is not binding.
- LOI (Letter of Intent): A document that explains what the buyer wants in a potential purchase. It has more details than an IOI and should have some timeesnes for due dilligence.
- Purchase Agreement: The final contract between you and the buyer that clearly outlines the terms of the sale.
Step 7: Training and Closing
Typically a seller will help train the Buyer at least 2 weeks but in some cases the training can last several months. All this should be negotiated and extended training should bring additional costs.
If the buyer is getting a loan from the SBA 7(a), the lender will check everything carefully. Work with your broker and the buyer to provide any information the lender needs to provide the proper funding. When everything is ready, you will meet the buyer, their lawyers and your broker in a room (or online) to sign the closing papers. And now your off to the next chapter…
