Sell a Business – The First Steps
The first step in selling your business is getting it ready. Having your company’s financial records in order is essential because prospective buyers look for those to get a sense of the health and potential value of your company. It’s important that you make sure these records are current and that they meet current accounting standards. If you’re planning to sell your business, you should also prepare the company’s records before you begin the process.
Keeping track of industry benchmarks is crucial to ensuring that you get the highest price possible. This is because buyers will evaluate your business’s performance against other businesses in the same industry. For example, a company in the food service industry must have a gross profit above 30%. You should also be aware of the most valuable aspects of your business and ensure that they are detailed in your asset valuation. As a seller, you should consult a professional when selling your business.
When selling your business, it’s important to follow the process and document all payments, promises, and incoming payments. There may be some loose ends, which can make the process more complicated and lead to a lower sale price. It’s also essential to hire professionals to assist you in the process to make sure you get maximum value for your business and are protected legally. If you’re not sure how to sell your business, read up on the various steps to sell your business and make sure you do them correctly.
Once you’ve found a buyer for your business, it’s time to document the sale. You should also pay any outstanding bills. Make sure the buyer pays you on time and make all incoming payments. Having loose ends can complicate the closing process, so make sure they are all tied up before the transaction. Lastly, it’s important to get your documents in order to complete the sale. It’s crucial to follow the process step-by-step to ensure a successful sale.
Choosing the right buyer is the next step in the process of selling a business. The process can be lengthy and sensitive, but it’s important to be prepared. With the proper steps and proper advice, you can ensure that your business is sold successfully. It should take at least 12 months to prepare. There are a number of factors to consider. You must also be aware of the market. There are many people looking for businesses in your field.
The process of selling a business is a long process that can take months or even years. Making a mistake can result in a less than favorable sale, put your company in the wrong hands, or prolong the process. A guide is a great tool that can take the guesswork out of the process and make the selling process smooth. The first step in selling a business is hiring a professional. A good broker will help you find a buyer who is willing to pay a fair price for your company.
Step 1 Step 1: Determine Your Business Value
The majority of entrepreneurs believe that they know the value of their business. However, in most cases, the value they think they have is far away from the actual value.
Before you set the price of sale that is excessively high or too low, you should engage a valuation professional. A third-party appraisal will provide you with an accurate estimation of the value of your company. If you pay a fixed amount (usually several thousand dollars) an appraiser who is qualified will assess the worth of the company with a comprehensive report and supporting documentation.
The report will ultimately give credibility to your price in the event that potential buyers doubt the value. At a minimum the valuation report can give you an estimation of what you could be expecting.
If you’re not planning to employ an appraiser, you could try to find the value of your business on your own. In general there are three primary ways to appraise an enterprise–cost approach market approach, cost approach, and the intrinsic value method.
The third approach, which is called”the discounted cash flow method is the most simple to implement. A majority of businesses are valued between three and six times the value of their current cash flow.
In addition there are many other aspects to be considered in this article. Trends in the business world, business debt assets, trends in business debt and companies similar to those that are available for sale are just some examples to think about.
If you determine the value of the property on your own or hire an appraiser who is a third party, your value might not be the price you pay for your property.
In the final analysis, a business only has value if people are willing to pay. If you’re not satisfied with the value you’ve received, it’s not the best the time to sell your company at this point.
Imagine selling a house. The real estate agent you hire will be able to tell you how much the value of your home is however, the house could be on the market for a long time at the price you’ve set. You may have to invest some cash into the property in order to achieve the highest value. Similar reasoning could be used to sell your company.
Step 2 Step #3: Put Your Financials in order
Once you’ve identified the value of your company then it’s time to plan your financials. For some this is much simpler than for others.
Selling a business draws a lot of people watching your financial statements. Lawyers, prospective buyers accountants, accountants and third-party valuation companies, brokers specialists, and many others will be scouring through your accounts. To ensure everything is running smoothly, your bookkeeping needs to be flawless.
In the majority of instances, you’ll have to submit at least the most recent three tax years’ returns along with precise accounting statements (balance sheet and income statement, as well as a the cash flow report).
In the event of any errors or mishaps, these documents could cause a red alert to prospective buyers. Any inconsistencies within your records may raise additional questions even if it’s simply a mistake made by you.
Am I being misled? Are these numbers attempting to cover up something? Are they a lie? I’ve heard about the company This is the kind of thoughts that run through the head of a buyer when mistakes are discovered on your accounts.
The majority of small-sized businesses do not possess the benefit of having an accountant or bookkeeper..
If you are in this category, I would strongly recommend hiring an expert in accounting to tidy up your accounting before you put the business up for sale. This will make life much simpler down the way.
Step 3: Hire an experienced Business Broker
There are two choices to think about when selling your business: either sell yourself or work with an agent.
It is possible to sell the business by yourself if you’re selling to an individual in your family or someone who is trustworthy within your family. This can save you some money on brokerage costs.
For the majority of cases choosing a broker is going to be the best option.
There could be additional costs associated with this method? Absolutely. However, a broker can help you obtain the highest possible price for your business and help you sell it quicker than you can by yourself. Remember that brokers earn a commissions. Therefore, it’s in their best interests and best to sell the business at the highest value.
The broker usually comes up with their own estimation of the company. Take this estimate and compare it to the one you received in step 1. Although the numbers will not be exact but they should be similar.
If there’s a huge divergence between the broker’s estimate and the appraisal provided by an appraiser, then you may need to seek a third opinion to determine which is more precise.
The broker you choose has plenty of years of experience in selling businesses, which is highly useful. Other typical duties of the broker include:
- Finding the top buyers
- Selling the sale
- Protect your privacy
- Financing the deal
- Assist in negotiations
- Manage due diligence
Business Broker Options
Here are our recommendations for the top business brokers to help you sell your company:
- Bizbuysell.com – best for companies that have Under $300,000.
- Businessexits.com – best for businesses that have more than $30 million to $300,000 in annual revenue
- HL.com – best for companies that earn more than $10 million in annual profit
How much will this expense cost you? The cost of the services of a business broker typically is based on the amount your company earns.
The standard rule of thumb is that: the more you earn and the lower your commission you pay to brokers.
A business that has less than $1 million in annual revenue typically has to pay between 10 and 12 percentage brokerage fee, whereas companies with more than $25 million typically pay between 2.5-4.5 percent commission range. For businesses that fall in between the spectrum, brokers tend to employ to use the Double Lehman commission model, rather than the flat percentage.
It’s crucial to know the commission structure of brokers from the very beginning. If you’re not sure, ask questions. not sure. Some brokers could even require an additional retainer fee however, you could get around that by offering a lower commission.
Step 4: Find pre-qualified Buyers
Two key words apply in this process: pre-qualified buyers and purchasers (plural).
It is a good idea to submit numerous offers due to a variety of reasons. To begin it is possible that not all offers will be genuine. Selling your business requires you to reveal important information about your company. This information could mean an enormous amount to your rivals.
There is a chance that your competitor or someone for a competitor might make an offer to examine your financials. Therefore, don’t give this information to any person.
The majority of business transactions are covered by a third-party credit by the SBA. In some instances banks will demand sellers to contribute a percentage of the funding as well. Don’t get too excited by the first offer you receive and believe that the business is going to be sold.
It takes an average of between six and eight months for a business to be sold.
Alongside your broker can employ an expert in sales to help accelerate the process and to pre-qualify buyers.
Buyers can be classified into three major categories:
- Individual buyers
- Strategic buyers
- Private equity firms
The kind of buyer who makes an offer is a factor in the length of time it takes to finish the deal. For instance, a single buyer is likely to require an SBA-backed loan that could take up to 90 days to be approved while an equity-based private company could finance the purchase by itself.
Do not rush into accepting an offer immediately Also, don’t rush into accepting an offer. You could always leverage an offer to leverage another that can provide the most profit for your company.
Step 5: Finalize Legal Contracts and Documents
If you’ve located an appropriate buyer and have agreed to the offer of a buyer, now it’s now time to close the deal.
It’s where things can get a little chaotic and complicated. Therefore, you’ll want to let your lawyer take care of the majority of this process.
A few of the most common contract and legal papers involved with a sale of a business are:
- Purchase agreement
- Asset listings
- Noncompete agreements
- Guidelines for use of websites and the domain name
- The bill of sale
- Security agreement
You can write a purchase contract and contract by yourself, however I strongly suggest against doing that. There’s a chance you’ll overlook crucial details and be a victim of unforeseen events. The contracts could be upwards of 25-50pages.
In the event that your lawyer isn’t an expert in the law of contracts, they may be able to recommend an associate.
When everything is in place then it’s an issue of crossing the T’s and crossing the I’s, and then many Signatures as well as initials.
Tips and best practices for Selling Your Company
While selling your business could be reduced to five steps as described in the above paragraph, there’s some steps you should take during the process.
Utilize these suggestions and best practices to ensure that the sale is smooth. This will help you receive the most return on your investment.
Boost Your Sales
Like I said selling your business requires time. It’s not possible to list your business today and receive an offer in the next day.
I’ve witnessed many business owners who put all their efforts in selling their company that they forget about the business itself when they’re in the helm. You have to go every day to work and dedicate all of your efforts to increase sales.
A strong sales performance will eventually increase the value of your business and will make it more attractive to potential buyers. On the other hand the opposite, a decline or stagnation in sales can be a alarm for owners who are considering it.
It is crucial to have a network of individuals who can assist you with this task. Your lawyer, broker and accountant take care of their own responsibilities. This will allow you to have the time to focus on sales.
Create an Exit Strategy
Every business owner should be prepared with an exit strategy. The most effective strategies for exit are created prior to the time when you decide to let go of your company takes place.
It’s likely that this is something you’ve been thinking about for some time; a properly designed exit strategy can take time to create. If you do not have an exit strategyin place, is it not too late develop one. But , with that being said this may not be the right time to sell your company.
The worst thing you could happen to do is be in a situation where you are pressured to sell your business. In that situation it’s highly unlikely that you’ll be able sell the business at the highest value.
The unexpected can happen. Make sure you have a contingency strategy that covers a broad array of options for alternatives to exit.
What do you do in the event that a huge box store opens near you? What will you do when illness or age become an issue within your daily life? What happens if your children do not want to manage the business? These are only one of many scenarios that can arise.
When the time comes you’re ready to make a sale you’ll be well-prepared with an exit plan.
Selling an enterprise can be extremely emotional. This is particularly the case for family-owned firms, small companies, or one you’ve constructed by yourself from scratch.
The majority of business owners have an immense satisfaction with the things they’ve achieved. Tears, sweat, blood and nights of insomnia are things entrepreneurs share.
However, it’s important to remain clear of emotions in the picture. Being emotionally involved can cloud your thinking and make it difficult to make decisions.
Buyers who are interested in buying your product don’t care about how many hours you’ve spent each week over the past decade. They only care about the final outcome. If you feel that an offer is too high or unfair, you are able to refuse the offer at any time.
In some instances an opponent may make a reasonable and fair offer with the intention of purchasing. Don’t let a previous rivalry stop the deal from happening.
Pay Up in the Front
Check that the terms of your contract will require the payment in advance. There are buyers who might offer you an attractive deal, but they may not have the money to make the purchase today.
The idea of being paid in installments may seem like a small deal however this arrangement could cause some issues to you later on. There’s a chance that you’ll find yourself in an instance where you’re not receiving your money according on the terms you signed. If this happens then any legal recourse could simply be an additional cost for you.
Additionally the new owner may be unable to raise the funds needed to continue the business. If this happens then there might not be any cash to be repaid in the event that the business goes under.
Let’s say that you have two viable offers in the works. One of them is for a larger amount, but it has the financing for a period of ten years. The other is less but will pay you in advance. I’d highly recommend the first option.
Are you ready to sell your business? Don’t get too involved The entire procedure can be broken down into five steps.
Selling an enterprise is a lengthy process. Set realistic expectations of price and timeline.
In some instances you may decide to delay selling until you are able to boost your revenue and arrange your financials. If your company is performing well and making good profits this will be more attractive to prospective buyers.
This guide can serve as a reference point to guide you through the procedure. Follow the best practices and tips that I’ve provided in order to maximize the price for the purchase of your business.