How to Sell Your Small Business
Selling a business is not an easy decision to make. Whether you built it from the ground up, or bought it from another entrepreneur, you have poured your time, money and energy into making it as good as it can be.
Yet, selling can be the right decision to make, depending upon your situation. If you are looking to do things like: retire; start a new small business project; make a big chunk of money from your business; or get out at the right time, selling can be the best choice you can make.
It’s not easy to sell your business. You have to find the right buyer, figure out how much your business is worth, fill out the proper paperwork, figure out how they’ll pay you, whether they own the entire business or just the name, and more.
Table of Contents
Plan Ahead and Know When to Sell Your Company
Selling your business should not be a spur of the moment decision. It needs to be a tactical decision that you are in control of. Planning ahead gives you time to make your company as appealing as possible to potential buyers and put your business at a prime time to buy.
First off, look to your company’s long term goals and potential, and try to determine when your business will be at its next “peak.” That might be a time when sales are really good, the company just finished a major project, or when everything is running smoothly. Having your company in a good place gives you extra leverage when you start approaching buyers to get more money for your business.
It’s also important that your company is capable of working without you. Many small businesses rely on the owner to do major tasks, and many buyers aren’t interested in that kind of responsibility. Focus on getting your upper management capable of running the business without you so when you do sell, it’s an easy transition.
Decide Whether to Use a Broker or Sell Your Business On Your Own
Selling a business is not easy. You still have to take care of your business, and likely you are planning what you are going to do after you sell it. Along with not having the time, there is a lot of nuances to selling a business you likely don’t know.
If you don’t want to do everything involved with selling your business, consider hiring a broker to help. They can do a lot of the work, including finding buyers, assisting in negotiations, handling paperwork, putting the right value to your business, all while still looking out for your interests.
Before you hire a broker, you need to ask a few questions. Find out how many businesses they have sold total, how many of those businesses are like yours, and how quickly their average sale takes. Make sure you also get along well with your broker, as you will be talking to them frequently.
The biggest downside to working with a broker is that you have to pay them. Typically, brokers get paid by the seller, meaning that a portion of the money you make from the sale will go to them. It’s pretty common for a broker to charge a 10 percent commission fee when a sale goes through, but check with each broker on how they get paid.
If you want to pocket all of the money from the sale, be prepared for a lot of work. You’ll need to find buyers, do all of the paperwork, price your business correctly, and more. It’s also possible that some buyers won’t even consider your business unless you have a broker involved.
Determining the Value of Your Business
How much is your company worth? It’s a hard question to answer. Maybe you built it from the ground up right after college, or it’s your first true entrepreneurial success— regardless, it’s hard to be objective about it. It’s very easy to allow emotion to cloud your assessment.
Before you put a hard dollar amount on your business, you need to decide what you are selling. Are you only selling the name of the business to a buyer, or are they buying everything? Do you own the office space you are in, and is that up for sale too? Will employees be part of the purchase? Are you going to keep certain assets or are they part of the sale also?
Put a dollar amount to everything you are looking to sell and keep it all separate. You might find a buyer interested in only a few parts of the business, and end up selling off pieces to several different people.
A big part of your company’s value is how much money you pull in. Find your revenue and profits per year, and make sure you charge a multiple of that. That’s the part a buyer is most interested in, and it’s money you will no longer be making.
Prepare Financial and Legal Documents
There is a bunch of paperwork involved with selling a business, just like any major investment. If you have a broker, they’ll take care of the paperwork for you, only requiring signatures. But, if you are doing it solo, here is what you will likely need:
- Profit & loss statements for the current and past 2-3 years
- Current balance sheet
- Cash flow statement
- Business tax returns for the past 2-3 years
- Copy of the current lease
- Insurance policies
- Non-disclosure/confidentiality agreement
- Personal financial statement for the buyer to complete
- Executive summary of overview of the business
- Detailed profile describing the business
- Any additional documentation to substantiate the financial representations
- Professional certificates
- Supplier and distributor contracts
- Employment agreements
- Offer to purchase agreement
- Note for any seller financing
Finding a Buyer
It’s tricky business finding somebody to buy your business. It’s likely you don’t want to put up a “For Sale” sign on the front door or put up a post on Craigslist. There are websites online that let people list their business for sale, where only interested buyers can see them. Generally, this will entail working with a broker; business broker sites are often the most comprehensive place for buyers and sellers to connect and learn about businesses for sale.
Another way to find a buyer is by networking and contacting people in your industry. This could include competitors, companies that do the same thing in a different market, or maybe businesses looking to expand their services into your market.
Finally, it’s quite possible one of your employees might be interested in buying the business. Feel around with some of your upper management to see their interest, but be careful. If a lot of employees catch wind that you are selling the company, it might cause a panic. That means people might quit, productivity could plummet, and ruin your chances of selling.
Keep Your Business Running
Once you’ve made the decision to sell your business, you can’t simply not want to work anymore. It might be easy to ditch out, but sometimes selling a business can take a long time. Keep it running and do all you can to improve it while you’re waiting.
Selling a business is hard work, but doing it at the right time and in the best conditions can earn you a lot of money. Just be sure to price it correctly, find a good buyer, and do all of the work and you could have enough money to live out your life, make a massive purchase, or start up money for a new business idea.
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Ben Allen is a freelance content creator and digital marketer who believes in helping small businesses succeed. He spends his free time bragging about his two daughters, eating stuffed crust pizza, and playing video games.
This post was updated March 9, 2018. It was originally published February 8, 2018.