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A Comprehensive Guide to Selling Your First Business
Posted by Kanika Sinha
November 6, 2023
A roadmap to maximizing the returns from your first business sale.
The recent BizBuySell Insight Report reveals that small business acquisitions are thriving. Even more interesting is that despite facing the highest interest rates in over 20 years, business buyers remain optimistic, and sale prices continue trending upward.
There isn’t a better time to secure maximum value for your years of hard work.
But the big question is: How can you engineer a successful business sale? Work to build a solid plan and make negotiations a success.
Here is a 10-step guide to help you get through the sale of your business and get the best price.
Step 1: Choose the right business broker
Selling a business can be very complex and time-consuming. Appoint an experienced business broker for market insights, to determine the valuation, take on market negotiations, and provide legal support.
In addition, their extensive resources and personal network can expand your reach of potential buyers.
Step 2: Determine your business’s worth
Understanding what your business is worth will help put a number to the hours of hard work and the investments you’ve made. Ensure you don’t value your business too highly, or it won’t sell. But if you value it low, you risk leaving money on the table.
Work with a valuation expert, broker, or investment banker to ascertain your business’s fair market. Leverage their expertise to understand the different estimated valuations and select the one that is best suited for your specific business needs and goals.
Step 3: Find quality buyers
The right buyer pays you the best price, has the best terms, and is a good partner during the transition. But, finding one can be arduous. Seek the help of your business broker to access a high-quality buyer pool.
Active brokers maintain a database of qualified buyers, avoiding frivolous inquiries. They prioritize confidentiality, conduct credit checks, and match the small business to the right buyer.
Step 4: Structure a good deal
A well-structured deal combines effective communication, negotiation skills, and industry expertise. And it goes beyond the asking price alone. It encompasses crucial aspects like the buyer’s down payment, seller’s finance terms, transaction structure, and non-compete agreements.
Leverage the expertise of your team of professionals to structure a deal that creates a fair playing field between you and the buyer.
A buyer typically submits their formal offer as a Letter of Intent (LOI), which outlines the offer price and terms. Accepting the LOI initiates a deeper due diligence phase for the buyer to verify your business claims.
Use this time to evaluate the buyer’s identity, offer price, and deal terms. Additionally, pursue the buyer’s financing terms, non-compete terms, exclusivity, closing timeline, and post-sale support terms.
Step 6: Keep it confidential
Maintain confidentiality throughout the business sale transaction. Refrain from divulging sensitive information prematurely to avoid uncertainty among employees, suppliers, and customers — potentially impacting the business’s value and reputation. Consider limiting the data shared only to essential parties.
Step 7: Cooperate during due diligence
During due diligence, buyers validate your business claims, often requesting financial documents, customer lists, interviews with staff and clients, and scrutinizing contracts, tax records, and operational details. Ensure all your due diligence documents are in order and readily available.
Step 8: Review the legal offer
Following due diligence, the buyer makes a formal offer or opts out if the business doesn’t meet due diligence standards. In the case of a purchase, the buyer drafts a standard sales contract stating the deal terms and assets involved. The non-compete, training, and support conditions are also finalized.
Step 9: Close the deal
Once all the parties sign the sales contract, the transfer process commences. The process is divided into a few stages. First, your broker will set up an escrow transaction with a lawyer.
Next, the buyer sends the agreed-upon funds to escrow. An inspection period is used to confirm the transfer; after the buyer confirms, escrow releases the funds to the seller. Finally, the training for the buyer commences.
Step 10: Provide post-sale training and support
Usually, there’s a four to 20-week support period for the buyer post-closure (potentially up to five years if the owner stays as an employee) aimed at helping the buyer understand day-to-day management. The duration and type of training depend on the deal’s negotiated terms.
Make the arrangements to provide necessary training and support as a standard practice during the transition.
The final word
There is no one-size-fits-all solution to optimizing the sale of your business. However, adhering to the step-by-step guide outlined above, you will be able to cement a deal that you can deem as fair and thoughtfully considered.
Want to get more for your startup? Escalon can help ensure that your accounting, financial records, and taxes are accurately done and that they communicate the total value of your business to potential buyers. Talk to an expert today.
This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact ushere.
Kanika is an enthusiastic content writer who craves to push the boundaries and explore uncharted territories. With her exceptional writing skills and in-depth knowledge of business-to-business dynamics, she creates compelling narratives that help businesses achieve tangible ROI. When not hunched over the keyboard, you can find her sweating it out in the gym, or indulging in a marathon of adorable movies with her young son.