If you are considering selling your small business to pursue other opportunities, here are eight things that you need to know when starting this process.
Process of selling a small business
- Assess personal and business readiness.
When you are ready to sell your small business, there are a few key factors to keep in mind. First, you will want to gather financial statements and tax returns from the past several years. This will give potential buyers a clear picture of the business's financial health. Secondly, it is a good idea to consult with an accountant to get an objective overview of the business.
Thirdly, you will need to consider the equipment that is being sold with the business. Make sure that all the equipment is in good working order and that you have contact information for potential buyers.
Finally, you will want to have all your paperwork in order, such as your lease agreement. By taking these factors into consideration, you can help ensure a smooth and successful sale of your small business.
- Hire a valuation expert and find out your business's worth
If you're looking to sell your small business, one of the most important steps is to find out its true worth. This can be done by hiring a valuation expert, who will use sales price data and other factors to calculate the value of your business. Once you have this information, you can set a fair asking price and begin the selling process.
- Value Your Small Business
To value a small business for sale, the first step is to understand the typical multiple that buyers are willing to pay. Small businesses typically sell for two to five times their annual cash flow. This multiple will be higher if the business has high growth potential.
The next step is to calculate the business' cash flow. This number represents the amount of money that flows into and out of the business each year. To calculate this, add up all revenue and then subtract all expenses (including taxes). This will give you the net operating income (NOI).
- Involve the Experts.
It's important to get expert help when selling a small business. A knowledgeable M&A intermediary can help with every step of the sale process. Experts can help you through the entire process of selling your small business, from deciding on a sale price to drafting closing documentation. Having an expert involved in the process can help you avoid common mistakes and ensure a smooth transaction.
- Sift through Prospective Buyers
To find the perfect buyer for your small business, you will need to get your finances in order and have recent financial statements available. A professional business valuation will help you choose a reasonable asking price.
- Don't Fixate on the Purchase Price.
Other considerations may yield a higher overall sale. It can be helpful to understand all the terms that will define your deal. Do not let a high purchase price cost your money in your sale. The market will push the price up if it is worth it for the seller and buyer involved.
Most transactions have a lot of moving parts, and it can be difficult to keep them all in perspective. It can be well worth the time to understand all the terms that will define your deal.
- Create a Unique Teaser Profile.
To sell a small business, you'll want to create a unique teaser profile that is different from your website. This will help protect confidentiality agreements and avoid any potential issues with using the same words in your teaser profile.
You can use free templates and resources to help you write an effective teaser profile. Just be sure to keep it well-formed and easy to read so potential buyers can get a good idea of what they're interested in.
- Be Transparent in Everything.
Transparency is key when selling a small business. You need to be able to show accurate records of your business finances and represent your business honestly to potential buyers. This way, buyers can get a good understanding of what they would be purchasing.
Being transparent during the sale process also builds trust with potential buyers and shows that you are reputable. They will appreciate businesses that are upfront about their status and will want to see things like profit and loss statements, balance sheets, and tax returns from the past few years.
- Get Multiple Buyers' Bidding.
Selling a small business can be a complex process, but one of the most important elements is to ensure that you have multiple buyers bidding on the business. This will increase the perceived value of the business and create urgency for potential buyers to close the deal. More competition also means more opportunities to raise the value of your small business.
When identifying serious buyers, look for those with experience and confidence in their purchase decision. These are usually traits that will indicate a buyer who is more likely to follow through on their offer. Having multiple buyers interested in your small business will help ensure that you get the best possible price for your sale.
- Consider Character.
When selling a small business, it is important to consider character. This includes looking at the factors that will affect the sale of your business and weighing them against each other. It is also important to get all your paperwork in order and to meet with your accountant to make sure the books are correct.
Finally, it is important to focus on boosting earnings a couple of years ahead of time. The process of selling a small business can take six to twelve months.
- Remember that Buyers want Profits over Revenues.
Profit is more important to buyers than revenue when buying a small business. This is because profit is a measure of the business's ability to generate income, while revenue is simply a measure of the total amount of money coming in. By focusing on profit, buyers can get a better sense of how well the business will be able to generate income in the future.
Another reason why buyers may want to focus on profits over revenue is that it can be more difficult to manipulate. Revenue can be easily inflated through things like sales promotions or discounts, but profit is a more accurate measure of true earnings. This makes it easier for buyers to assess the true value of a small business.
- Make the Transition Smooth for Employees.
The process of selling a small business can be made smoother for buyers and employees by creating a document that spells out the role of each employee. This document should be kept up to date to make the transition as easy as possible for employees.
The owner will usually stay on as an employee for a specified period after selling the business, during which the goal is to make the transition as smooth as possible.
Common Mistakes Made when Selling a Small Business
- Don't make desperate or rash decisions when selling a small business.
- Be prepared and organized before you need to sell, and partner with advisers during the transition.
- Avoid asking for the wrong price and sell to the right buyer.
- Make sure to avoid common mistakes when selling a small business, such as:
- Not being prepared or organized before selling
- Asking for the wrong price
- Selling to the wrong buyer