7 Steps To Sell Your Business

When a small business goes on the block, it’s not just buyers who are investigating. Smart sellers are coming to the table with a clear understanding of their business’ competitive position in the market, a realistic asking price and knowledge of a potential buyer’s suitability well before they sit down to negotiate.

Selling requires careful planning—everything from cleaning up sloppy books and tax records to dressing up a tired store and updating old operating systems—even ramping up marketing to juice sales and command a higher asking price.

In the coming years, many independent business ventures will change hands as baby boomers continue to retire in droves. And according to the online business marketplace BizBuySell, it’s a good time to sell, with thousands of businesses poised to change hands in 2019.

If you’re considering selling your small business, consider these seven steps.

A valuation can provide a realistic estimate of what your business is worth. A business valuation can cost in the range of $5,000 to $12,000, where a qualified valuation professional can review a business and its competitive environment. The review typically considers everything from sales to receivables, inventories and other assets, as well as outstanding debt or liens, all with the goal of identifying business threats and opportunities that define value. Most importantly, from the perspective of a potential buyer.

Small businesses are typically worth three to six times their annual cash flow, depending on their overall financial health, industry trends, market demand, location and other variables. This determines the risk factors that a new owner would face when acquiring the business.

In today’s relatively soft market, prospective buyers want as much transparency as possible. They are performing more careful due diligence, kicking the tires on everything from a business’ financials to its real estate and equipment.

An owner can avoid red flags by working with a qualified professional to present clean financial statements and business tax returns dating back at least three years, and ensuring that all income is accounted for.

All too often, an unexpected factor—an aging or ill owner, lack of interest in succession from adult children, a competitive threat such as the arrival of a big-box store—forces small business owners to sell. So if you plan to outlast your competitors, prepare your exit strategy now, before such a situation forces a sale.

Selling strategies include those that are often overlooked: having a trusted employee take over the business.

Buyers want to see businesses with some upside. When sales are declining, it may not be the best time to sell. Buyers might also get skittish if a single customer represents more than 20 percent of revenue, putting sales at risk if that business is lost. If necessary, diversify the customer base or jump-start sales with increased marketing and promotions.

While you’re at it, push out bloated inventories and get operating systems up to date. Retail establishments might warrant a fresh coat of paint and some new fixtures, while restaurants might update their menus and say goodbye to disagreeable staff. Overall, you might ask yourself: “What do you have to do to get your sales to increase?”

You might be a terrific widget maker, but a lousy salesman. That’s one of many reasons to consider outside help with a sale. “Help,” usually means enlisting a business mergers & acquisitions adviser who will charge a commission of 5 to 10 percent of the sale price. In this case, the agency often performs the business valuation. He or she then prepares a prospectus and taps into a large network to locate buyers, including listing the business with suitable marketplaces, and applies a background in deal-making to get the best price. Advisers can also steer buyers to financing resources.

That’s how our success stories are created, by presenting the right business, to the right buyer, at the right time.

The vast majority of small business transactions are paid for in part by third-party loans, with many backed by the U.S. Small Business Administration. A major reason many deals fall through is because sellers enter transactions with buyers who are unable to secure financing.

Always pre-qualify your buyers & don’t get overexcited by an offer. In most deals, banks will also want the sellers to provide a portion of financing for the transaction; this ensures the seller has a vested interest in the venture’s ongoing success under new ownership.

There are a host of legal considerations when selling a small business. Among those necessary to close the deal is the asset purchase agreement, the legal contract for the sale and the purchase of the business assets, including physical as well as intellectual property. This comprehensive document — typically 25 to 50 pages long — will consist of exhibits such as non-compete agreements, asset listings, employee agreements and guidelines for the use of website domain names. It does not account for the sale of any stock.

Often deals will stipulate that the prior owner remain in an advisory capacity for a set period of time to ensure a smooth transition.