It’s exciting when you start looking into how to sell a business.
However, if you’re not familiar with the etiquette and process of selling companies, then there is no need to stress about it.
It’s simple enough to master with the right information, and professional services at your disposal and that is what this article is for.
Read on, as this is a guide to preparing a business for sale, finding a buyer, and making a profit when selling a business you own.
How To Sell A Business
There are many reasons for selling a business. You might have reached the end of the line in terms of growth and wish to start again with another business, or give another in your arsenal more of your attention.
There might be personal reasons for the sale such as a difference of opinion with a co-owner or the directional team overseeing the company.
The business might have become less profitable in recent times and you want to be shot of it, or you might just want a new adventure and are simply bored of this line of business.
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Whether it is your own business that you built from the ground up or one you acquired and have finished with, knowing how to begin and approach potential buyers is key to the successful conclusion of your venture.
What Defines A Business?
Before you think about valuing or selling your company, you need to understand what a business is and make sure you know the implications of separating yourself from one.
According to the oracle that is Investopedia “The term business refers to an organization or enterprising entity engaged in commercial, industrial, or professional activities.
Businesses can be for-profit entities or they can be non-profit organizations that operate to fulfill a charitable mission or further a social cause. Businesses range in scale from sole proprietorships to international corporations and can range in size from small to large.”
In order to sell a business, you need to know whether or not you have one to sell.
A business does not have to be defined by the profits it makes, at least not necessarily. Most companies that are sold, are businesses that are commercial ventures in which professional services or products are sold for profit.
If you have a charity or non-profit organization, then these are still classified as businesses and are sold in the same way.
This is because a person will have had to make a significant investment of resources to get the company up and running, regardless of whether the company is intended to profit as a result.
If you wish to sell your non-profit company then you’ll want your investment back as someone else benefits from it.
Your investment might have been money either in a lump or spent gradually on technology, materials, or even office equipment to make the charity viable, or you might have put objects that you own into the business which are now tied to the running of that company.
This is why non-profit companies are sold in the same way as commercial businesses because you are seeking to regain the assets, money, and resources you’ve already invested in the company to date.
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Why Would You Want To Sell Your Business?
Knowing the answer to this question is key to the successful negotiation and eventual sale of your business.
It is the first thing a potential buyer will want to know because it can help communicate the profitability and perceived potential of your company from the person who knows it best.
There are a number of legitimately good reasons for wanting to sell your company and none of them should be a dip or lack of profit from that business, but more on that later.
Common reasons for wanting to sell a business are:
Partnership disputes – You can explain this to a potential buyer as long as it is not going to affect them or the business in the future.
Be careful not to make yourself or your business partner look too unreasonable or volatile because although the buyer won’t have to work with either of you after the sale, they will have to deal with you both in the negotiations.
If the buyer thinks that mediation and agreement between the current partners is unlikely, then they’re going to have significant trouble in negotiating with you both. At least that’s how they’ll see it.
Retirement – This is a very usual reason for selling a business, especially with those who might wish to move to sunnier climes when they give up management of the business.
Once you decide that your working life is over, you have two options.
You can either sell or delegate the management of the business to a trusted individual.
The risks of leaving a manager in charge of your life’s work while you step back and enjoy your golden years are:
- that if the profits should start to decline or the company even begins to fail, that will be very distressing for you
- as well as financially detrimental to the enjoyment of your work-free adventures
If you are then forced to or decide to, sell the company, you may not even make a profit.
Therefore, it is often better to sell when the company is in its prime and either live on the profits of the sale or reinvest the profits into a backseat venture.
Illness or death – If the sole proprietor or co-owner of a company gets seriously ill or even dies, this can make the business inoperable.
If the company is not sold, it will very likely start to bleed money to keep it afloat and whoever now owns the company will have nothing left to show for it.
Sometimes an employee or relative will inherit a business and can make a success of it if they have the industry knowledge, but if the owner died unexpectedly and there is no one legally entitled to take it over, then the business will likely need to be sold.
Becoming overwhelmed with work – Some entrepreneurs will find that some of their business ventures will require more of their time and money than others.
You can never tell what the business sector will do in the future and unexpected occurrences can lead to challenging and time-consuming duties for the business owner that they were not prepared for.
If their workload becomes too much for them to handle, they may choose to sell off one of their businesses that is stressful for them, or one that demands less of their time in order to make time for the more challenging enterprises.
Boredom – Sometimes it’s just time for a change and you feel the need to move on.
If your business is in a good position in terms of financial stability and profit but you’re becoming disinterested in managing it, now could well be the time to test the waters and see what price you could conceivably get for it.
How Do You Sell Your Business?
Whatever your reason for selling your business, you’ll want to make sure you do it right and get the most capital back from your investment and make the most profit.
To help you know how to prepare your business for sale and support you in making savvy business decisions about the method and legal implications of selling your business, we’ve put together this handy guide.
With the information below you should be able to get a firm grip on the procedure for selling your business and understand how you can strengthen your position as a vendor to get the best price possible.
With that in mind, your first consideration will be timing the sale of your business just right.
Timing It Right
Preparing for the sale of your business is super important.
Beginning to get the documents together for the sale ahead of time can make it a lot easier when negotiations start.
If it is possible to do so, start thinking about how you can best prepare your business for sale a year, or even two, ahead of the desired sale date.
This will not always be possible where unexpected illness or death is the reason for sale, but where possible, you should take the time to get your company in the best shape for the sale.
If your business is failing or the profits are inconsistent, you will struggle to get a good price for your business.
Your business might be like your own child to you, but an investor is not going to see personal fulfillment or charity as a good reason for buying your business.
If you wouldn’t buy it as an investment as it now stands, you’ll need to do something about that.
If you have no choice but to sell your company due to financial pressures, then you can expect to sell it for much less than the rate it might have gone for had the business been thriving and you had plenty of time to get the best deal.
In Business, it’s all about timing so try and present your business to the market at the right time.
It’s All In The Prep
The first thing you’ll need to do is get an accurate valuation of what your business could conceivably be worth.
Getting the professional opinion of a business appraiser is by far the easiest way to get an accurate assessment as it’s their job to know the current market and assess all assets involved with the business.
As an owner, you may not even be aware of all the facets of the business or the assets it possesses, so a valuation can be very enlightening.
It can also point you toward unexplored avenues for improvement and growth which may help increase the appeal of the business to a potential buyer.
If you get a professional appraisal, the document can be shown to any interested party to lend some credibility to the asking price which can save time with quibbles over the price range.
It’s a great idea to gather and order the previous several years of tax returns, income statements, and other documents relating to the success of the business before you put it on the market.
The reason for this is that any buyer will insist on seeing them and you may as well have them to hand and save yourself the stress of trying to source all the documents under pressure before the buyer loses interest.
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You should also prepare an information packet containing information about the running aspects of the company.
This should detail how the business is run, who the stakeholders are, and which areas, if any, will need to be refurbished, repaired, or updated in the near future.
Be as honest as you can in this document, but be careful not to be modest.
You want a sale and a profit after all.
Work With A Business Intermediary, AKA Broker
Selling your business alone without the use of a broker can be risky.
Professional business intermediaries and listing agents work to support and protect you.
Selling your business is a serious undertaking, and not one you should take lightly or ‘wing it’!
At Niche Investor (formerly BlogsForSale.co), we offer a complete white-glove listing service, as well as a marketplace and network of buyers and investors.
Even if you are selling the company to someone you already know and trust such as a family member or employee, you can still use our services to provide proper contracts, oversee the Escrow transaction, and assist in the transfer of assets.
Then again, if you are appealing to the open market, then getting the expert help of a business broker can save you significant time and energy that you will otherwise have to use in sourcing a buyer and negotiating with them yourself.
If you aren’t experienced at selling companies yourself, then we would recommend you begin by reaching out to us to act on your behalf.
You will also likely need to enlist the help of your accountant in case you need to finance the sale, and it is also advised that you have your lawyer look over the sale agreement, once a buyer is lined up.
The Waiting Game
Depending on the size of your company, the sale of a business can take between six months and two years on average, so prepare to be patient when it comes to the sale.
Just like in real estate, it’s very common for sales of businesses to fall through or encounter obstacles that delay proceedings.
Patience is a virtue and especially so in the world of business, so prepare to wait for things during the sale process and also anticipate disappointment by lining up a couple of buyers at a time, if there is enough interest to do so.
If The Price Is Right
Once you have found a buyer (or three) that are interested in buying your business, it will be time to look at offers.
Negotiation is expected, but do not be bullied into letting your company go for less than it is reasonably worth. When taking into account the physical and virtual assets it currently has and the potential for the future with the right management.
Your Niche Investor agent will be able to assist you with this as well.
Once you have agreed on a price, your Niche Inestor agent will provide the lawyer-drafted sale agreement for your own legal council to review. And once everyone has signed, it will be time to open Escrow.
Now you can proceed with the sale.
How To Sell A Business – Conclusion
The selling of a business can leave you with mixed feelings including intense relief and a sense of grief.
It is natural to be conflicted, but what’s done is done and the future is full of possibilities.
Whether you are happy in your heart to see the back of this business, it’s important to look towards the future with hopeful, yet strategic intent.
As long as you have done your best to adequately prepare the business for the sale and are satisfied with the final figure you’ve received, you should consider the process an unmitigated success.
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