Selling your small business can be a lengthy, confusing, and emotional process with several considerations to make. Collaborating with a support network of business brokers, accountants, and solicitors is a very effective way of ensuring you have the right advice and tools are at your disposal every step of the way. But it is also essential to truly reflect on the following:
- Reason for selling
- Timing of the sale
- Business valuation
- Selling on your own vs. using a broker
- Preparing documents
- Finding a buyer, and
- Handling the profits
Reviewing these seven considerations can help you build a solid plan and make negotiations a success.
1. Why are you selling your business?
You may have already decided to sell your business, or perhaps you have been contemplating the idea for some time, but why? What is your reason for deciding to sell? That’s one of the first questions a potential buyer will ask, so as the owner it is important you understand your intentions so you can answer any questions from a buyer accordingly. Typical reasons for the sale of a business include retirement, partnership disputes, illness and/or death in the family, becoming overworked, or boredom.
Some owners deliberately sell their small business when it is no longer profitable. Be wary of this kind of thinking, as a business in the red is unlikely to attract buyers or return a profit on the sale if successful. Consider your business’ ability to sell. Your business will become significantly more appealing to buyers if you can show an increase in profits, consistent income figures, a strong customer base, or a major contract spanning several years.
2. Timing of the sale
Selling your business shouldn’t just be a thought on a whim. These things take time, planning, and resources. That’s why it is vital to prepare for the sale as early as possible (sometimes even a year or two ahead of time). Use this preparation time to improve your financial records, business structure, refine marketing, hone costs and build customer databases in an effort to present the business as profitable. These improvements will not only increase your potential buyer pool but also help in the transition of ownership and make things easier for all parties involved.
3. Business valuation
The third helpful tip for selling your business is to determine how much your business is worth. A business assessment or appraisal from an accredited broker can do this for you. You don’t want the price to be too low or too high. Much like real estate and the property market, the asking price of your business price needs to be comparable to the industry median in order to attract suitable buyers and open negotiations. Having a business assessment document or report also adds credibility to your asking price when selling your business.
4. Selling on your own vs. Using a broker
Using a trusted business broker like Verified Businesses, can help ease the burden when selling your small business and free up your time so that you can continue to work. Business brokers also have the unique ability to create competition yet keep the sale relatively quiet so that you can gain the highest possible price. Selling your business by yourself, you run the risk of concerning clients/customers while your business is on the market. This may negatively affect the sale of your small business also… When working with your business broker make sure to keep regular contact with them to discuss sale expectations, contracts, advertising, and any other queries you may have. They are here to help YOU and your business.
5. Preparing documents
When preparing for the sale of your business you will need to provide your broker (and the potential buyer) a basic checklist. This will help you achieve a quick, clean, and profitable sale when the process begins to solidify:
- The last three years of profit and loss statements, balance sheets, and tax returns of the business
- Complete listing of all equipment and other assets to be included or excluded in the sale
- If applicable, an interim profit and loss statement, balance sheet & BAS (Business Activity Statements)
- Equipment leases/chattel mortgages and phone agreements
- If applicable, copies of all franchise agreements, licences, loan documents, or contracts
- A full copy of all lease documents relating to the premises
- All agreements relating to employees
- Any environmental reports
- Copies of all other documents needed to present a fair and accurate description of the business to prospective buyers
- Description of business’ operating policies and/or procedures manual
It would be well worth the extra time and investment to ensure the business is presentable and all records are in order. If any equipment or other areas of the business need some attention or maintenance, now is the time to put in some added elbow grease. Anything that is broken or needs repairing should be fixed prior to the sale of the business.
6. Finding a buyer
It is important to remember that the sale of a business may take substantially longer than the sale of a house, machinery, car, or other equipment. The sales process could take anywhere from six months to two years. Therefore, it serves well to be patient and aware of market conditions. Finding the right buyer can become challenging, that’s why it should be handled by professionals. Once you have prospective buyers, keep the process moving along. Here are a few helpful hints:
- Try to capture two to three potential buyers (just in case the initial deal falls through)
- Keep in regular contact with potential buyers
- Allow for negotiation room but stand firm on a price that is reasonable. You must also take into account the company’s future value
- All agreements must be in writing, including non-disclosure/confidentiality agreements and non-compete agreements to protect your business interests and information
7. Handling the profits
Congratulations! You are now at the stage of your sale where you get to enjoy all of your hard earned cash. But a word of advice, take some time before you go spending the profits from the sale. Establish a plan which outlines your financial goals and educate yourself on any tax consequences as a result of sudden wealth after the sale. It would also be in your best interest to speak with a financial advisor who could guide you through this process. The wise financial choice would be to pay off any debts, save for retirement, or invest long-term. But it is also important to remember to treat yourself too. The ‘pay yourself first’ philosophy is all about setting aside a little money at the beginning to enjoy your new wealth and reward yourself for all your hard work in business. Take a holiday with the family or buy tickets to an exciting event. Whatever it maybe, you deserve a chance to enjoy the fruits of your labour, but ONLY if you are sure you can plan for your financial future at the same time.
Thinking of selling your business? At Verified Businesses, we are the leading Business Broker on the Sunshine Coast and we have an enviable reputation within the local business community.
Want to know more about how to sell? Contact our friendly team today to book a consultation. You can also explore our Sellers Toolkit for everything you need to know about selling your business.
At Verified Businesses, success in business is Verified.