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How to Sell Your Small Business

Posted by Neha De

May 6, 2020    |     5-minute read (988 words)

For most business owners, selling their company isn’t just about financials. There are a number of reasons behind this decision, from retirement and relocation to other circumstances such as burnout or illness. But if you've decided that it's time to sell your business, consider these tips to attract the right buyer and get the best price so you can make sure everything is done correctly and according to plan.

Plan Your Exit Strategy

The first step to a quick and successful sale is charting an exit strategy, which is a plan for what will happen when you leave your business. It offers you a way to lower or liquidate your stake in your business and, hopefully, make a sizeable profit. Common exit strategies include:

  • Keeping the business in the family
  • Selling to a friendly buyer
  • Selling to employee(s)
  • Selling to another business
  • Initial public offering (IPO)
  • Merger and acquisition (M&A)
  • Liquidation

The exit strategy you choose will depend on your personal goals and status. For example, if it's about money, selling to another business or on the open market might be your best bet. But if legacy is important to you, then handing over your business to family or selling to an employee might be better for you.

Get a Realistic Valuation for Your Business

A business is usually worth a multiple of its revenue, so you should bring in an appraiser to get a proper valuation for your business. The appraiser will help you arrive at the actual value of your company, based on such factors as sales, revenue, inventory, outstanding invoices and debts. A third-party valuation also mitigates the risk that a seller might argue with you about your company’s valuation, since it brings credibility to the asking price.

Get Your Books in Order

When it comes to financials, prospective buyers want to know everything about the business. Get all your business documents in place and ensure they’re up to date. You will need at least three years of clean financial statements to present to them, including:

  • Financial records, which include profit and loss statements, bank loans, forecast financials and an outgoing cost breakdown.
  • Commercial information such as registration papers, asset and insurance details and supplier accounts.
  • Operational documents including business history, stock inventory lists, supplier information strategy, procedure and process documents, staff rosters and marketing materials.
  • Legal documents including employee and customer contracts, lease agreements, franchise agreements (if any) and health and safety guidelines.
  • Forecasting documents to show revenue growth, intellectual property (IP) or favorable market conditions to help your prospects see your business as a profitable investment.

It is recommended to bring in an attorney and an accountant to help you gather these documents.

Hire Professionals

If possible, work with a business broker who has experience in your industry and your geographic area. A broker knows how to ask the right questions, collect the necessary information, choose the best valuation method and ensure that you're getting the best price possible for your business. Once you have put your business on the market, a broker will also help you find and vet potential buyers, making the process faster and less labor-intensive for you.

Whether you decide to hire a broker or sell independently, you’ll need to consult other professionals to help get things in order. An accountant, a lawyer and an investment banker can help guide your company through a sale, while an accountant and a lawyer can also help you with your personal financial planning once you make the final sale.

In addition, an attorney can assist you as you draft useful documents such as a letter of intent to help protect your information when sharing details with interested buyers, a non-disclosure (NDA), confidentiality agreements and other contracts.

Put Your Business up for Sale

If your business broker can help you find the right buyer, fantastic! But if that’s not the case, you may want to consider using web-based small business marketplaces. Many of them are full-service brokers and oversee the entire sale process, from vetting both parties, determining market value and ensuring secure transactions. Some popular online marketplaces include:

  • BizBuySell boasts more than 45,000 businesses for sale across a vast range of categories, including physical locations and e-commerce businesses. Sellers pay for an ad and are contacted by interested buyers.
  • Digital Exits acts as a broker to sell your e-commerce or Amazon business. You can browse through the businesses they’re currently selling to get an idea of how much your business is worth.
  • Flippa, a budget-friendly online business marketplace, is marketed for first-time sellers. In case of a successful transaction, sellers pay the fee, while it’s free for buyers.
  • BuySellEmpire claims to have helped broker sales of more than 300 websites with a combined total of $25 million. The firm also says it has a 95 percent success rate.
  • Empire Flippers evaluates sellers to provide buyers with verified information.

Maintain Confidentiality

Not every negotiation will end up in a sale. Hence, it’s important to establish confidentiality between your company and prospective buyers. Get an NDA signed by your prospective buyers to protect your company’s interests. Once again, rely on a professional to draw up the documents for you.

Prepare for Due Diligence

Give your prospective buyers time to carry out their due diligence, as it offers them the opportunity to do a deep dive into your company's financial records to validate your sales pitch, identify any problematic areas and satisfy their curiosity before signing on the dotted line.

Be prepared to answer any relevant questions the prospects might have about the sale. Your team of advisors, which includes your attorney, accountant and broker, can help you figure out what questions the buyers are likely to ask about your company and how to best answer those questions. Also, identifying any red flags beforehand and resolving them can speed up the sale.

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