As a business owner, you worked hard to get your business started. You worked through many sleepless nights, spent hours on the phone, and cast visions before lenders and investors, all to make a dream come true.
Now, as your business has gained stability, you're ready to sell it and retire. The only problem is, the task seems so daunting. You don't quite know where to start.
However, there's good news. Selling a business, like starting a business, follows a process. In this guide, we'll break down the seven steps of that process and teach you how to sell a business!
1. Determine Your Business' Value
The first step in selling your business is determining its monetary value. Usually, you can pay a third-party valuation team to estimate your business' worth. These evaluators consider your sales and receivables, inventory stock, and outstanding debts.
In doing so, they identify potential business threats and opportunities that could affect your value. Often, a small business is worth three to six times its annual cash flow.
2. Clear Up Your Financials
Your prospects will likely examine your business in great detail before they purchase. To demonstrate your business is a worthwhile investment, clean up your financial information.
Prepare clean financial statements and business tax returns for three years. Likewise, demonstrate that you can account for all of your income in that timeframe.
3. Prepare an Exit Strategy For Selling a Business
Several unexpected factors can force small business owners to sell. In the event of a future business transition, prepare a plan that helps you sell your business faster.
Some experts encourage an employee buyout, where you hand your business over to trusted employees. This strategy can help the business transition smoothly, as employees know the business well.
4. Boost Your Sale Numbers
As a business owner, ask yourself: would you ever buy a business in decline? There's a high likelihood the answer is no. So, before you consider selling a business, make sure your sales numbers perform well.
5. Contact a Business Broker
Business brokers help you to find potential buyers for your business and make the first contact. However, they do so for a cost. Usually, they will charge a commission of 5%-10% of the sale price. This arrangement usually occurs when they assist companies with less than $5 million in revenue.
6. Pre-Qualify Buyers
Plenty of small business transactions go under because one side couldn't produce the necessary financing. When selling a small business, at least one party will usually require the aid of a lender or financing company.
Make sure your buyer has the financial capacity to follow through on their purchase. Don't let yourself get excited over a figure until you've vetted the prospect.
7. Prepare Your Business Contracts
Selling a business involves several legal considerations. These include the asset purchase agreement, a legal contract for the sale and purchase of assets, and others. Typically, this document can range from 25-50 pages in length.
Start The Process Today
If you plan on selling a business, preparation is essential. You have to discover your business' worth and begin clearing up financial information. Once you've done this, you can actively pursue your sale.
However, you also need to take care of yourself with retirement plans for business owners. To learn more about these plans, check out our resources today!