For most people, selling a business is a once-in-a-lifetime event. It can be an emotional and stressful time for the owner. To optimize your success in selling your small business, it is important that you plan ahead.
Here are a few important topics to consider when preparing yourself (and your business!) for the sales process.
1. Be ready to sell.
There is no sense going through the motions if you are not mentally and financially committed to selling your small business. Discuss the sale with your spouse or partner in advance. Evaluate your financial needs so there is less hesitation once an attractive offer comes your way.
2. Discuss your goals with your advisors before you have an offer.
To avoid delays and misunderstandings, do not wait until you have an offer in hand to consult your advisors. If your attorney is not well-versed in small business transactions, interview others. You are unlikely to reach the closing table if your advisors do not clearly understand your ambitions.
3. Understand the true value of your business.
Most owners have no idea of the value of their company since small business valuations can be an art AND a science. Consult a business sales professional (who is typically NOT a tax accountant or business attorney) for an explanation of how small businesses are valued as a multiple of seller’s earnings.
4. Get a firm handle on your financial information
Update your company’s financial statements and understand the nature of you firm’s revenues and expenses. Remember that:
- Buyers will typically require 2 to 3 years of financial statements (profit-and-loss statements, balance sheets and/or tax returns) for their evaluation.
- Make sure you have supporting documentation for nonoperational expenses (fringe benefits such as your personal health insurance).
- Prepare a simple list of the business’s important furniture, fixtures and equipment.
- Document your inventory. If it is stale or obsolete, put it on sale or donate it. Your inventory should be lean and moving.
- Clean-up your accounts payable and any pending legal, employee or environmental issues.
5. Prepare the paperwork needed
Organize your legal paperwork such as operating licenses, property leases, customer agreements and insurance documents. Get everything in order.
6. Consider your employees.
Decide how and when you will communicate the sale with your employees. Because of the uncertainty involved, most business owners wait until the sale is imminent (or done) before sharing the news with their employees. A buyer is likely to keep your employees after the sale is completed, so treat employees with respect during the sales process to avoid any last-minute issues.
7. Improve your curb appeal.
Tidy your working space — first impressions make a big difference!
8. Brainstorm on ways to grow the business.
All buyers are looking for ways to add to the work you have done by improving sales or cutting out unnecessary expenses. If you have ideas, be prepared to discuss them with the potential buyer.
9. Know why you are selling and be prepared to tell the prospective buyer your reasons.
Most buyers are curious to why you are selling and will ask for an explanation.
10. Run your business as you normally would
Now is not the time to take long vacations or let sales slip! A business with healthy financial books and upward potential could command a higher price than a business that is in the dumps with little chance of recovering. Just like a house, you want to make your business look good to attract the right buyers.
Recommended Readings on Selling Your Small Business:
- 20 Questions to Ask When Selling Your Business
- Determining the Price of a Small Business
- How to Choose the Right Business Broker to Sell Your Business
- How to Prepare a Business for Sale: What Your Buyers Need to Know
- Selling Your Business: Important Documents Needed
- Closing a Business: What You Need to Do
Recommended Books on Selling Your Small Business:
- How to Buy and/or Sell a Small Business for Maximum Profit — A Step-by-Step Guide: With Companion CD-ROM
- Businesses For Sale: How to Buy or Sell a Small Business – A Guide for Business Buyers, Business Owners & Business Brokers
- The Complete Guide to Selling a Business
- 11 Things You Absolutely Need To Know About Selling Your Business
- Selling Your Business For Dummies
Ryan Cave, MBA is managing director of Sunbelt Business Brokers of South Florida, a business brokerage firm specializing in the purchase and sale of small to midsized businesses. Sunbelt Business Brokers of South Florida has been involved in the valuation and sale of privately-held businesses for over ten years.