How To Sell Your Business

If you currently handle most day-to-day operations, it’s time to start delegating. You want your buyer to see that the business can run smoothly without you. This is an important aspect buyers will look at closely and can make a difference in your selling journey. If your business is a well-oiled machine that doesn’t need many adjustments, it will sell for a higher price.

Create a packet of general information about your business. Make sure to include your origins, media mentions/publicity, company growth history, marketing strategies, and general employee information. This will give your buyer a complete picture of your business and its trajectory.

Is your business mostly online? Make sure to also share your search engine ranking, keyword ranking, visitor statistics, demographics, and any competitor analysis you have completed. You want to give your buyer all of the information you can so they feel confident in their purchase!

Organizing your finances is one of the most important things you can do. If you don’t have your contracts and documents in order, if your information is unclear and messy, or if you appear unprepared, a buyer will move on quickly to one of their other options.

Most buyers will have a checklist of required information they will ask for after they’ve given you their letter of intent, so it’s a good idea to be prepared as early as possible.

Here are some of the documents you’ll want to start rounding up:

• Contracts
• Intellectual property (ensure loose ends with any contractors)
• Expense reports
• Profit reports
• Revenue documentation
• Cashflow analysis
• Customer base analysis
• ROI analysis
• Appraisals
• Real estate documents
• Undocumented agreements (e.g, promised equity sharing)

All of these different kinds of documents are things you can and should start gathering now. Even if you decide not to sell in the end, having your financial documents and contracts organized is never a bad idea. You’ll be more confident when speaking with prospective buyers, and they’ll feel more confident in the health of your business!

You should also plan for the following:

• Holding a documented shareholder meeting if required in your state.
• Settling any undocumented agreements (e.g., equity sharing).
• Going through your financials and tax statements with a CPA or accountant, so everything is categorized properly and compliant.

An added benefit of looking over your financial and tax statements with a CPA or accountant is potentially spotting areas in your business you may want to adjust in order to maximize profits before selling. If your business is large enough, these changes could make a significant impact on your business valuation (the process of determining the economic value of a business). This is why it isn’t a bad idea to move your goal sale date down the line a year or so in order to make a little more money in the long run.

Like an appraisal on a home, an accurate business valuation is critical because it brings credibility to your asking price. The selling price of your business can vary greatly depending on what industry you’re in, the current trends, and the projected growth of your business. This is why business valuations can fluctuate dramatically between different kinds of businesses.

It isn’t hard to guess that the higher your profits, the more valuable you’ll be to potential buyers. It’s important to be aware of the long game and choose what expenses you take on carefully if you’re planning on selling in the near future. Any expenses you decide to add, make sure you categorize them appropriately and deduct them accordingly on your taxes.

If you haven’t already been approached to sell, it’s time to begin one of the most challenging phases: Finding a buyer!

An easy first step is to spread the word to your colleagues and acquaintances. You’ll want to advertise to target a broader audience of other small business owners or interested parties. You could also decide to keep everything confidential, but that will make a broker a necessary part of your selling journey moving forward.

If you have difficulty finding a buyer on your own, it might be worth it to find a broker. They will take a cut of the final purchase price, but they have connections you don’t have and should be able to find and vet better buyers for you. Not to mention, because their income is commission-based, they will be focused on getting the highest asking price possible. A qualified and experienced broker could help you save time and maximize profits.

Once you find a potential buyer (congratulations!), it becomes their responsibility to take a look under the hood of your business and learn all that they can. After they’ve given you their letter of intent, that list of items we mentioned earlier will follow soon. Since you keep clean books and have an organized back office, providing these documents will be a snap!

There will inevitably be some probing questions from your buyer before they decide whether or not to finalize the deal. If your buyer is intimately familiar with your industry, you could be facing high-level questions about your company and employee culture and/or requests for nitty-gritty analyses of the financial and tax documents you’ve prepared.

We also recommend pre-qualifying your potential buyer. In doing this, your company enjoys a bit more protection because you’ll only discuss the particulars of your business with serious buyers who have provided some background financial information about themselves. From a buyer’s perspective, a pre-qualification can also encourage them to become more invested in moving through to the next phase.

You’re almost there! The finish line is in sight! It’s time to prepare and communicate with your employers about the upcoming leader and ownership change.

Because of the amount of work this entire process can be, many business owners have already brought a broker on board, and in that case, the pressure is mostly off of you to tie up loose ends! If you don’t have one, then it’s a good idea to have an attorney finalize the contracts. They will be able to catch blind spots you may have missed and help protect your business.

Now that the deal has been finalized, you’re officially entering the post-sale transition period. Some buyers ask the seller to stick around for an adjustment period to ensure a smooth handoff. This can be several weeks or a few months; whatever the expectations are, ensure you have those settled and clarified before the deal is officially closed.

There are several important things you need to make sure you prepare to make sure your employees and your business continue to thrive after you are gone.

• Merchant Services Provider: You will need to contact your merchant services provider to learn what the protocol is for transferring leases, contracts, and any equipment you use for payment processing. If you’re in a long-term contract, you’ll have to fill out a change in ownership request form. If you’re worried about an early termination fee or a binding agreement, check out our articles on merchant agreement auto-renewal clauses!
• Payroll/Accounting Software: To ensure that your employees don’t experience a gap in pay or other snafus related to their paycheck, it can be helpful to include a guide for payroll. The best payroll software will have reports related to business closings. Your accounting software, if you use it, is another crucial part of your business that can impact your buyer and employees, so make sure to also provide login and other information for this program.
• Important Contacts: Do you have a CPA or accountant? Who do you call when the toilet clogs or the WiFi goes down? Do you have favorite vendors or businesses nearby that you have especially good relationships with? While all of this might be the last thing on your mind when you’re finalizing your sale, passing along this information can ensure the new owner and your employees have a smooth transition.

It can be helpful for you to start paying close attention to the tasks you complete for your business and think to yourself, would a complete stranger (or one of my employees) know how to complete this task? If the answer is no, make a guide for it. Better yet, make a document with chapters, paragraphs, lists, or whatever you like most, and add everything there so it is in one convenient place for the new owner.

You will need to contact a CPA or accountant who is Accredited in Business Valuation (ABV) and specializes in calculating the value of businesses. They will be able to complete a business valuation and calculate how much your business is worth.

It can be a difficult process to sell a small business. It can be a time-consuming, emotional, and overwhelming experience, but you can do it with the right amount of research and preparation!

While there are many different ways you can go about selling a small business, we recommend making sure that you prepare an exit strategy, get your financials in order, obtain a business valuation, find potential buyers, do your due diligence, finalize the deal, and prepare to hand off your business!

If you are selling your business for the right reasons and you can be confident in your “why” and your “now”, it’s definitely a good idea to sell your business!