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How to prepare to sell your small business

Posted by Shivali Anand

October 18, 2021    |     5-minute read (921 words)

For most business owners, selling their firm isn't simply about the money. The decision usually boils down to a few key factors, such as retirement, relocation or health-related factors such as burnout or illness. 

If you've decided it's time to sell your company, follow these guidelines to find the appropriate buyer and obtain the best price to smooth the transition.

Prepare an exit strategy

The first step toward a speedy and successful sale is to develop an exit strategy, meaning a plan for the time when you leave your company. Such a plan allows you to reduce or sell your interest in your company and, ideally, generate a healthy profit. 

Common exit methods include:

  • Selling to a favorable buyer.
  • Selling to an employee(s). 
  • Keeping the business in the family.
  • Selling to another company. 
  • Initial public offering. 
  • Liquidation.
  • Merger and acquisition. 
Your ambitions and standing will determine your departure plan. If it's about money, for example, selling to another company or on the free market could be the best option. If creating a legacy is essential to you, though, selling to an employee or turning over your firm to the family may be a preferable option.

Obtain a realistic business valuation

Because a firm is generally worth multiples of its income, you need to hire an appraiser to give your company a fair assessment. Based on sales, revenue, inventory, outstanding bills and debts, the appraiser will assist in determining the actual value of your business. A third-party appraisal also reduces the likelihood of a seller disputing your company's valuation since it lends legitimacy to the asking price.

Organize your books

Potential buyers want to know everything about the company’s finances. Gather all of your company paperwork and make sure it’s all current. 

You will need at least three years of paperwork for:

  • Financial documents, including profit and loss statements, bank loans, projected financials and a breakdown of costs.
  • Business documents, such as registration papers, asset and insurance information and supplier accounts.
  • Operational documents, such as business history, supplier information strategy, stock inventory lists, procedure and process papers, employee rosters and marketing materials.
  • Legal papers, including employee and customer contracts, leasing agreements, franchise agreements (where applicable) and health and safety regulations.
  • Revenue forecasting papers that demonstrate revenue growth, intellectual property or favorable market circumstances to assist prospects in recognizing your company as a viable investment.
Tip: It is advised that you hire an attorney and an accountant to assist you in gathering these papers.

Hire professionals 

If feasible, deal with a company broker that is familiar with your sector and location. A broker understands the appropriate questions to ask and knows how to attain the required data, select the most refined valuation technique and ensure you receive the highest possible price for your company. Once you've listed your company for sale, a broker can assist you in finding and vetting potential purchasers, making the process more efficient for you.

Whether you employ a broker or sell on your own, you'll need to seek advice from other specialists to get everything in order. A lawyer, an accountant and an investment banker may all assist you in guiding your firm through a sale and an accountant and a lawyer can also help you with personal financial planning once the sale is completed.

Furthermore, an attorney can help you create essential papers, like a letter of intent to secure your information when discussing facts with potential purchasers, a nondisclosure agreement, confidentiality agreements and other contracts.

List your company

Ideally, your company broker could assist you in finding the perfect buyer. If that isn't the case, look into retaining an online small company market. Many are full-service brokers who handle everything from screening both parties to establishing market value and guaranteeing secure transactions. The following are some of the most well-known internet marketplaces:

  • BizBuySell claims to have over 45,000 companies for sale in various sectors, including physical locations and e-commerce operations. Sellers pay for an ad and potential buyers contact them.
  • When it comes to selling your e-commerce or Amazon firm, Digital Exits serves as a broker. You may look at the companies they're selling right now to get an estimate of how much yours is worth.
  • Flippa is a low-cost online business platform aimed at first-time sellers. The charge is paid by sellers in the event of a successful transaction, while it is free for purchasers.
  • BuySellEmpire claims to have helped people buy and sell over $200 million worth of online businesses. The company also claims to have a 95% success rate.
  • Empire Flippers assesses vendors to give verifiable information to buyers.
Maintain your anonymity

Not every bargaining session will result in a sale. As a result, maintaining secrecy between your firm and potential purchasers is critical. To safeguard your company's interests, have your potential purchasers sign an NDA. Rely on a professional to prepare the paperwork for you once again.

Be ready for due diligence

Allow time for prospective purchasers to conduct research on your company's financial records, as this will allow them to confirm your sales presentation, discover any issue areas and satisfy their curiosity before signing on the dotted line.

Prepare to address any pertinent questions regarding the sale that the prospects may have. Your team of advisers, including your attorney, accountant and broker, can assist you in determining which questions purchasers are likely to ask about your business and how best to respond. Identifying and addressing any red flags ahead of time can also speed up the transaction.

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