Skyscrapers in a city lit up at night.
Are you considering selling a business? If so, it’s critical to ensure you’re following the proper steps. Not only does this help cut down on the risk that you’ll miss something important, but it can also streamline the process for you and your co-founders.
One of the most important things to remember about selling your business is this: Selling your business is a process, and you’ll have to plan it carefully in order to be successful. Unless you have lots of experience in selling companies, it’s smart to pay for and hire professional help.
There are lots of hoops to jump through when it comes to selling any business. Therefore, enlisting a broker and consulting with an accountant and attorney as you move forward is the best way to save yourself from problems that will stall or end the process.
8 Steps to Selling a Business the Smart Way
If you’re interested in selling a business or finding buyers for your business, follow these eight tips:
1. Understand Why
Understanding why you’re selling your business isn’t just important for your peace of mind: it’s also one of the first things a buyer will ask you about. While there are dozens of reasons people choose to sell their companies, it’s wise to understand yours and be sure you’ve done everything in your power to communicate it to your buyer.
As you reflect on your motivation, be sure you think about how your reasons will impact the buyer’s enthusiasm for making a deal. For example, selling a successful business because you want to retire presents a different opportunity than selling because profits are declining or the market is shrinking.
2. Pinpoint the Value
The next step in the process of selling your business is understanding how much your company is worth. If you don’t know, you can hire a professional appraiser who will help you set a number.
This professional will evaluate your entire company, from your sales to your receivables and other assets, to determine how much the business is worth and what, if anything, you can do to enhance its value before you sell. According to the NFIB, small businesses are typically worth anywhere from 3-6x their yearly cash flow, so keep that in mind as you set a price.
3. Find a Buyer
Selling a business doesn’t happen overnight. With this in mind, be sure you’re giving yourself plenty of time to find a buyer. The best strategy involves finding 2-3 buyers, in case one deal falls through. Be sure you’re finding buyers who qualify for financing. As you move through the process, stay open to negotiations, since you may get a better deal than the one you were first offered.
4. Hire a CPA and a Lawyer
A CPA will be critical to handling the financial aspect of the sale. Along with your lawyer, a CPA will work to minimize tax burdens and ensure you’re not hurting your credit or financial well-being down the line. If you’ve never worked with a CPA before, ask other business owners for recommendations.
5. Develop an Exit Strategy
Before you sell your small business, put an exit strategy in place. Not only does this make your sale easier and more streamlined for your would-be buyer, but it prevents the process from dragging on too long or becoming difficult for you and your team.
Your exit strategy should include things like transition time for the new owner, training, and anything else your company will need to succeed as it’s handed over.
6. Diversify Your Customer Base
The ultimate thing your buyers want from you is stability, and now is the time to work to create that for them. Buyers want to see a business with sales that are actively growing, but they also want to see a company where no one customer accounts for more than 20% of sales. Be sure to diversify your revenue sources now to create more stability down the line.
7. Pre-Qualify Buyers
You shouldn’t just sell your business to anyone. Instead, you should look for the buyers who actually have the backing to produce a reliable offer.
In addition to having the funds to make the purchase, your new buyer should also have the personality needed to fit in with your brand’s culture. Be sure you’re not just jumping on the first thing that comes your way. Instead, take the time to find the right buyer for your company.
8. Set a Contract
Next thing is to set up a contract. This is one of the many places it pays to hire a legal professional. A business lawyer will help advise your company on smart corporate moves and ensure you’re not making a decision that could harm you down the line. As you draw up the sales contract, the lawyer will also work with you and your CPA to cut down on your tax burdens and ensure the deal is as sweet as can be for you.
Professional Tips for Selling Your Business
Selling your business can be challenging, but following these steps can help ensure it remains as simple and streamlined as possible.
For more information about finding buyers for your business, read session 14 of MOBI’s business expansion class.