26th May 2022
How to sell your business-Step by step guide
The time has finally come! You have decided to sell your business and the first thing which comes to mind is how can I sell my business and how much can I sell my business for? Many business owners invest a lot of time, money, hard work into their business to make it successful. The sacrifices and struggles to make a company succeed is an achievement in itself. Not everyone can build a successful company, all of which make the decision to sell more complicated and emotional. Well, if you’re wondering how to sell your business but don’t quite know where to begin or how to go about it, our step-by-step guide and to do list will help in answering many questions and guide you in successfully selling your company.
Planning in how to sell your business is the first step. Selling a business can be a complex process and gets much more complicated if there is no proper planning and business owners would not want to go through an emotional and logistical nightmare to sell a business. The key objectives of proper planning is to understand why to sell, how to sell, how much can I sell my business for, how long will it take to sell etc. How do you sell a business relies on proper early planning and focusing on long term objective rather than making short-term decisions that will ultimately go against your plan. So, let us answer some of the key objective mentioned above such as why are you selling a business -Retirement /Moving on to a new venture/Burned out/Lack of fund to grow/Operational issues, the reasons can be many but how quickly you want to sell can affect the final outcome so preparing for a sale at least a year or more in advance is critical.
Talking to your accountant in advance to organize your books properly and making your books spotless is key- as down the line brokers, buyers, accountants, lenders will request for tons of financials(typically last 3 years) during the various stages of a sale process and you are operating a business and having all these financials ready will help you immensely, Any missing or unrecorded income or other financial discrepancy can be red flags to buyers .Improving your customer base and sales by investing little bit of money and sweat equity goes a long way as it shows that your sales are trending upwards which is sending a good signal to buyers and lenders that your business is in a good shape and there is more room to grow. Ultimately, the goal is getting your business to be in a good shape and looking stronger than ever, before it goes into the market for sale. A certified business broker knows how to sell your business, help you in the planning phase and can successfully sell it for you. Let’s discuss the other factors in detail below.
To do lists: Define your goals and financial outcome you want to achieve from the sale of the business, prepare for a sale a year or two ahead of time, organize your financials with the help of an accountant, increase your sales and customer base, make the business presentable. We highly recommended hiring a certified business brokers in this phase to guide you.
Valuation-You would want to determine the worth of your business and understand the real market value of the business which buyers are willing to pay today. The common mistake seller usually make is asking their accountants or other professionals to determine the value of the business and also asking them to how to sell your company. Well, other professionals may tell you the value of the company or how to sell but the valuation provided usually cannot be backed by data or proven methods. It is merely their opinion of what they have read or seen, you need to ask yourself if every kind of business is the same and operate the same way? There are many factors which differentiate similar business from one other like net profitability, ease of operations, type of customer base, assets etc... What a business broker provides also is a broker opinion of value but it is backed by market comp data of similarly sold businesses using various databases available to them. An experienced business broker will consider all the above factors to determine the value of your business. There are certified business appraisers who provide a detailed explanation of the business’s worth but may not guide in how to sell your business. Business appraiser will charge a fee and in certain sales, business brokers will bring in certified business appraiser to get a valuation if it is a complex business to appraise. The valuation explanation and document provided by appraiser will bring credibility to the asking/listing price. Ultimately if the valuation of the business is higher than the market price, the business may not sell and if the valuation is under market value there is a good chance the seller is leaving money on the table.
To do lists: Valuation by a business broker or business appraiser is important in understanding the current market value.
Listing & Marketing – “Is it possible to sell my business on my own?” You’re a business owner and you understand financials very well after all you have spent years building your business so you can certainly find a buyer and get them to the closing table, right? it sounds like reasonable thing to do but not as straightforward as you may think. Understanding how to sell your business using the right listing and marketing tools is key in selling a business successfully. Let’s understand the listing part first, there are a few websites on which the business owners can list their businesses for sale but these are not main stream websites where many buyers are looking to buy businesses. If any buyer finds your listing there and contacts you directly you have to maintain confidentiality about your own business because you do not want your employees and customers to know that you are selling your company. All of these roles and responsibilities are a burden to your day-to-day operations and may not spare you with any time to respond. A business broker maintains confidentiality and will not provide any information other than the basic information needed to take it to the next step and also qualify buyers. Business brokers know how to sell your business on the multiple online platforms which can be expensive and also have an expansive internal company database / list of potentials target industry buyers & investors to provide maximum exposure for your business. The bottom line is-Implementation of these various marketing methods by a business broker you’ll see a big increase in the number of potential buyers which also increases the chance of finding the right buyer, the best possible price and terms. So, selling a business on your own is not impossible but you may not get the desired results or for the worse you may not be able to sell the business.
To do lists: Hire right professionals to market your business while maintaining confidentiality to sell the business fast and for the best possible price. Pre-qualify potential buyers before engaging and disclosing your business information.
Financing & Closing -Finding the right buyer is the half the work and bring them to the closing table is more crucial. Most business acquisitions are funded by a third-party lender and some by owner financing or a combination of both. Many transactions fall apart because buyers fail to secure a loan after entering into an agreement with sellers. So, qualifying a buyer before this step is very important. You may follow all the steps discussed above in how to sell your business but if the buyer cannot get a loan, then all the time and effort spent in getting them to this stage is worthless. Experienced buyer usually knows the process but a lot of new buyers need to be guided. Business brokers usually prequalify the business for a loan with the help of lenders during the listing phase and also prequalify potential buyers by asking them to submit financial statements showing they have enough resources for a down payment and working capital etc. Lack of buyer experience in the same or similar industry is a big disqualifier for lenders. Finally, with the help of a good transaction attorney the closing can be a smooth process if all the prior requirements are met along with funding.
To do lists: Important to have more than few lenders, Hire a good transaction attorney.
Now you may have understood the basic steps of how to sell your business but how do you handle the profits?? Plan your financial goals and learn about tax implications. Whether you plan to retire, start a new business you need a plan in place to maximize the value of your profits. If your company was producing a good cash flow allowing you to maintain a good life style it is crucial to have a plan in place to maintain that lifestyle after the sale of the business. Financial planner can be of good help.
To do lists: Understand tax implications before the business is sold (Accountant can help understand tax implications), plan ahead to handle the proceeds from a sale (Financial planner can help)
Bottom line is understanding how to sell your business and selling the business successfully are two different things. Selling a business can be as complex as starting a business. Our best advice is plan way ahead of the time, keep your emotions out of the deal and hire the right professional as it usually takes 3 -12 months to close a deal. A lot of things can go wrong in this process so let the professional handle because it is very important for the business owner to operate the business as planned and increase the sales/profitability to get the highest price possible price. Selling a business for the maximum value also depends on the quality of the hired broker, how quickly you want to sell, the reason you are selling the business.