The idea of selling your business can be stressful and emotional. Business owners choose to sell their business for many reasons, maybe they want to retire, maybe the business is not producing the profits they need in order to live off of it, or maybe it’s just time to move on. Whatever the reason, the following offers a few tips on how to sell your small to mid-sized business.
Before you list your business for sale and officially put it on the market there are several things you should do to prepare so that you are ready before the business hits the market.
Clean up and repair any critical equipment
Cleanliness is so important, make sure the facility is as clean as possible. Hire a professional to come in and give it a thorough cleaning if you don’t have time. The cost will pay for itself in the long run.
As you are doing a thorough cleaning keep an eye out for repairs that can be made to improve the overall appearance of the business. You want to identify small items that can have a big impact like painting, minor redecorating, things that are relatively inexpensive that can have a large impact. Look at the first place your potential buyer will see as they enter your facility and make sure it’s top notch. You only get one chance to make a first impression.
Your Staff & Your Exit Strategy
If you haven’t already, now is the time to think about your exit strategy specifically as it pertains to your staff. Consider whether or not you want to tell your staff about your plans to sell your business. They may see potential buyers coming in and out, and you may need their help in keeping the facility as clean as possible throughout the sales process so telling them upfront may be beneficial to you.
Additionally when it comes to your staff, be sure that someone can do your job. When potential buyers are looking at your business, it will be more attractive if another staff member can step in once you’ve left. Having a solid exit strategy is just as important as finding the right buyer as you want to leave your business in a healthy position. If a buyer sees the company will remain stable in your absence, it will be all the more attractive to them and easier to make an offer.
Paperwork & Documents Needed
Take some time to gather all the proper paperwork. Potential buyers of small businesses are not only going to want to look at your facility but all your important business documents and information such as:
- Your business tax returns for the last three to five years
- Your P&L’s & interim financials
- Your balance sheets for the last three to five years
- Current lease information (make sure to check and see what is transferable and what is not)
- Insurance information as well as any licenses and permits required to run the business. Make sure they are transferable and understand the process required to do so.
- A list of plant and equipment that is being sold with the business
- Any vendor agreements, contracts.
- Employment contracts with key employees and/or managers
Consider A Business Broker Or Agent
Once you have done all this consider working with a business broker. A business broker can do a number of things for you and can help make this process less stressful as they have done it all before. They can help you navigate the complexities of selling a business allowing you to continue to run the business without distraction.
Valuing Your Business Correctly
With your brokers help, establish your asking price for the business. When selling your small business remember that there are usually two prices, one is the asking price which is what you, the seller, would like to get for the business. The second is the selling price which is what the seller receives. Somewhere in between is the Fair Market Value, which is the highest price the buyer is willing to pay and the lowest price the seller is willing to accept.
There is no formula for figuring this out. Each business needs to be considered on an individual basis. There are, however, certain benchmarks and valuation approaches and methods that enable an experienced appraiser to determine the most probable price for the business. Having your business priced appropriately will make it more attractive to potential buyers and increase your odds of selling.
Be Patient
It takes time to sell a business. Once your business is on the market you have to be patient and wait for the right buyer to come along. Even if you find a buyer and have an Expression of Interest signed, continue to have dialogue with interested buyers that way you are not blindsided if the deal falls over. If a buyer starts taking too much time, go to your back-up buyers for offers.