Congratulations! You’ve made up your mind to sell your business. It’s probably one of the biggest decisions you’ll ever make. Now you need to ensure that you get it right. Selling a business can be a tricky affair. There are so many moving parts, and it’s up to you to take the steps that will ensure a sale at the best possible price.
Timing the sale correctly is crucial. If business sentiment is high and the economy is booming, you can get a better price. Fortunately, the environment is currently favorable for sellers.
Unemployment is at a 50-year low, and that’s putting money into the hands of the American consumer. There’s plenty of demand for the goods and services that small businesses sell.
However, good market conditions aren’t enough to guarantee a successful sale. Think of them as a “necessary but not sufficient” condition. There’s plenty you can do, as well.
Here’s a list of ten things that will help you to maximize the price when selling a business. Taking these steps could also contribute towards a positive post-sale experience for both you and the buyer.
10 Tips for Selling a Business Successfully
This is a list of steps that you can take when selling a business.
1. Get your business ready for sale — start the process early
The Latin phrase, “festina lente” is relevant here. It means “make haste slowly.” While that may seem to be contradictory, it can be a useful piece of advice when you’re selling a business.
The key issue here is that your decision to sell shouldn’t be made in haste. But once you’re sure that that’s what you want to do, it’s necessary to speed things up.
Draw up a list of activities that need to be done. Are your accounting records up-to-date? What if the buyer were to inspect them today? Do you have a list of your biggest customers and the details of the sales that you have made to them? Is your office space well maintained?
There’s a lot of preparation to be done for selling a business. An early start will give you the time to do a thorough job.
2. Prequalify the buyers
After you put your business up for sale, you’ll start getting calls from prospective buyers. However, you need to remember that every caller isn’t a serious buyer.
How will you separate the wheat from the chaff?
You could start by asking a few questions. For example, what does the caller do? Is there any connection between the caller’s current line of work and your business? How long has the search for buying a business been going on?
There’s another crucial question that you must ask at some stage. In fact, the earlier, the better. How will the prospective buyer pay? Have the funds been arranged? A genuine buyer shouldn’t hesitate to provide you with a letter from a lender or an accountant certifying that the requisite funds are available.
3. Decide on an asking price
One of the first things that you must do is to decide much you want for your business.
Choose the amount with care. If you set the price too high, you’re likely to scare away buyers. You shouldn’t set the price too low either. Remember that it will be practically impossible to raise it at a later point.
So how do you determine the price? There are several ways to value a business. In certain industries, you could arrive at a selling price by adding up the value of the company’s assets. The valuation could also be determined based on an appropriate multiple of your company’s revenue or earnings.
A good starting point could be to use the Business Valuation Report service provided by BizBuySell, a company that offers online listings on its website for buying and selling businesses. Purchasing the report also gives you access to current information on “for sale” and sold businesses to show how prices compare.
If you’re selling your business because you need money, remember that there are other options.
Camino Financial offers small business loans for amounts up to $400,000. You can find out if you qualify by filling a simple form. Our motto, “No business left behind,” guides our team. We’ll do our best to meet your fund requirements. We also promise to get you the best possible interest rates.
4. Advertise the sale
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5. Find a good business broker
A business broker’s help can be invaluable. But don’t sign up with the first one you come across. It’s advisable to interview several brokers.
What should you ask in the interview?
Find out if they have sold a business similar to yours in the past. What was the price they got? How will they market your business?
There’s another crucial question that you must ask. What is the price at which the broker will try and sell your business? Don’t get taken in if the broker provides an inflated valuation. You may find yourself in a situation where there aren’t any bidders. It’s far better to hire a broker who quotes a realistic selling price.
6. Get legal and financial help
It’s a mistake to go solo when you’re selling a business. A lawyer’s advice is essential. So is an accountant’s.
These professional services won’t come cheap. But it’s money well spent.
An accountant will ensure that your financial statements are in order. You can be sure that the buyer will study them carefully. Additionally, you’ll need legal help to make sure that the agreement for the sale of your business doesn’t contain any clauses that could come back to harm you.
7. Prepare your documents
Any serious buyer will want to see your company’s reports. Get your financial statements, and your tax returns ready for the last three years, at least. You should be able to explain if any questions are raised. Consider spending some time with your accountant to prepare.
A few areas deserve special attention. Ensure that your physical inventory matches the data in your books. Additionally, are there any debtors who haven’t paid for three months or more? Prepare a statement providing details and the reasons for non-payment.
It’s also advisable to prepare a document that describes how your business operates. This should give prospective buyers an idea of your competitive strengths.
8. Don’t forget to sign an NDA
A business sale confidentiality agreement, which is also known as a non-disclosure agreement (NDA), plays a crucial role when you’re selling a business.
Your lawyer should prepare this document. Its purpose is to protect your company’s confidential information. You don’t want your customer list falling into the hands of a competitor. Neither do you want other firms to know the prices at which you are buying raw materials from your suppliers.
If the prospective buyer is reluctant to sign or insists on changing important clauses in the NDA, consider walking away from the transaction.
9. Prepare a checklist
Pilots use them. So do surgeons. A checklist can help you to organize your work when you are selling a business. If you write down what you have to do, you’re less likely to forget an important task.
Here’s a checklist for successfully selling your business. You can use this as a guide to creating your own.
10. Cap your potential liability
When you sell your business, the buyer may insist that you remain responsible for any loss that relates to the period before the sale and which is discovered post-sale. While this condition may be reasonable, there should be a limit to the seller’s liability. This limit or “cap” should be agreed to when you are negotiating the sale.
You could be offered a higher price if you are willing to bear a greater potential liability. As a general rule, it’s better to play safe. You may be better off accepting a lower price and a reduction in the liability cap.
The Bottom Line
If you’re planning to sell your business anytime soon, you should start with the preparations right away. Collect copies of your financial statements and tax returns, organize your documents, and get ready to answer questions from prospective buyers.
Ready to take the next step? We invite you to read How To Sell A Business for more information.