We all know selling a business requires time and dedication. And it is a significant step in your life that requires enough preparation. A lot of people are having trouble reaching their declared objectives. If you are one of those and are wondering, “How to sell my business?” this guide is perfect for you. We will provide you with a step-by-step blueprint to accomplish this goal.
There are many steps to this process aside from simply looking for a buyer. You have to prepare your company for sale, figure out how much it is worth, and advocate for a great deal. An extensive business sale can be rewarding to you, but a poor sale can be costly to you. We will make sure you succeed.
Know Your Reason for Selling
Realizing why you want to sell your business is an important first step. This is a question that every buyer is guaranteed to have in mind. Therefore, it is important that you think about this question seriously. Constructing an honest plan is a great way to build instant trust with potential customers, and it will help you stay on track with this lengthy process. Some of the most common explanations for deciding to sell a business include:
- Retirement: You have spent most of your life working, and it is finally time for you to kick back and relax.
- New Plans: You have discovered a whole new business opportunity that you are excited to pursue.
- Life: Your personal commitments or health can make it difficult to run a business.
- Financial security: money is needed for your family, other investments, or your own future. Having your goals in mind is an invaluable motivator.
Your motivation is being focused and inspirational, and providing a strong value proposition. It greatly contributes to pricing and explains compellingly why you need a buyer.
Step 1: Prepare Your Business for Sale
When a company is well-organized, the buy-sell procedures must be established before the company is even put up for sale. Additionally, a well-organized business is more likely to be sold quickly and for a higher price.
In order to have clean business operations, it is helpful to have a step-by-step outline of what the business does. This is much easier to achieve if the business is run and staffed by a team and not by a single person. If you own the business and you are the only one doing everything, it is time to begin delegating and training others. Put key positions into the hands of other team members.
In the next operations, check if the business is operationally and legally compliant. Make sure operational licenses, permits, and other legal contracts are valid and not expired. Make sure there are no legal issues, or sort them out, before the potential buyer comes. A clean legal slate makes sellers and buyers feel comfortable. A clean licensed business is operationally free from legal issues.
Step 2: Organize Your Financial Records
Ensure financial statements are precise and in order.
- Document Collection: Pull together all financial documents for the last three to five years. You will need profit/loss statements, balance sheets, and cash flow statements.
- Business and Personal Expenses: Don’t mix personal and business expenses. If you do, you will not see the real profit the business generates.
- Engage an Expert: Consider hiring an accountant. They will go over your documents and help draft your financial statements. It will help show potential buyers that you are organized and mean business.
Well-organized financials demonstrate the overall health of your business to buyers. It makes the “how to sell my business” question easier, as there is a figure to back it.
Step 3: Find Out What Your Business Is Worth
What is the value of your business? It is a central question. Optimal pricing is important. If you overprice the business, you will not find potential buyers. If you sell it for less, you lose out on value.
A few different methods exist to value a business.
- Asset-Based Value: An example of this would be the total value of your tangible business assets, such as equipment or real estate, as well as inventory. It is a straightforward way to assess the value of a business. However, it often fails to capture the entirety of a business.
- Earnings-Based Value: This is how business buyers value a company. They estimate future earnings based on past profits and take a multiple of yearly profit to arrive at a purchase price.
Step 4: Create Your Marketing Plan
Once you set up your business and have set a price for it, the next step is to identify a potential buyer. Now, your goal is to get a marketing strategy to reach the potential buyers. There are some documents you will need to prepare.
A teaser is a concise document that is generally a page long. It outlines the particulars of your business without mentioning your business name. The goal of this document is to spark the interest of potential buyers.
Now, a buyer will need to sign a non-disclosure agreement (NDA) before sensitive information is shared. This is to ensure that the details of the business under consideration are kept private.
A Business Profile (CIM), which is the Confidential Information Memorandum, contains more sensitive and detailed information. This document contains the entire narrative of your business and its history, information about its operations, finances, and projected future growth. A good CIM is marketing your business the right way.
Consider how you want to market your business. This can include a business broker, a website, or your network. Heuristic brokers are experienced and will help you market your business to suitable buyers while you continue your work.
Step 5: Find and Screen Potential Buyers
Not every interested person is a serious buyer. You need to separate those who are serious from those who are just looking. This saves a lot of time and energy. When talking to potential buyers, ask smart questions.
- Do they have any experience in the industry?
- Have they purchased a business before?
- How will they pay for the business?
- Will they need a loan?
- Ask for proof of funds. What are their plans for the business after they buy it?
Screening buyers gives you the ability to find someone who is able to purchase the business and is a great fit for the business long-term.
Step 6: Discussing the Sale’s Conditions
This phase is about settling the final steps of the sale. This is not solely about the money, as what is more important to discuss is how the deal will be structured, the duration of the transition, and any other deal-related specifics.
Initially, a buyer will send a formal proposal. It is often referred to as a Letter of Intent (LOI). This serves as a guideline to what the buyer is willing to pay and other terms related to the sale. This document is typically not legally binding. However, it is a good indicator that the buyer is committed to the deal.
After an LOI is accepted, the buyer will initiate the due diligence phase. It involves a comprehensive examination of every aspect of the business. They will audit the various financial, legal, contractual, and operational documents associated with the business. All the work done to prepare the business in Steps 1 and 2 will pay off at this stage, as due diligence is a lot more bearable when the business is in order.
Be as flexible as possible while also knowing exactly what issues you will not be willing to budge on. The buyer will likely justify any price they offer as being lower than what you anticipate based on issues they identify.
Step 7: Close the Sale
The last step involves the transfer of legal title of the business to the buyer.
You will collaborate with the lawyers on the final purchase agreement. This document is the final contract that is legally binding on both parties. It will contain specifics about the sale, such as the final amount the buyer is willing to pay, the terms of the payment, and the scope of the sale.
Carefully read through the Purchase Agreement. Ensure that you acknowledge and agree to all the terms. After you and the buyer append your signatures on the purchase agreement, the sale transaction is officially completed. You will then receive your money, and the buyer will acquire the business.
Congratulations and well done on your accomplishment of completing the exercise on how to sell my business. Selling your business is a complicated process, but with the right and ideal steps, you will streamline the process to the end as a safe and good experience.
