Are you looking to sell your business within the next six-months to a year? If so, then this article is designed for you. Here are the critical steps you need to perform that will help you to quickly and smoothly sell your business.
Define Your Exit Strategy
The first step is to figure out your exit strategy. You will need to decide how you want to pass the baton to the new business owner. Besides your traditional third-party buyer, consider some of these exit strategies:
One of the easiest ways to sell your business is through an employee buyout. Perhaps your manager has taken particular pride in your business. Would they be interested in becoming the new owner? They already know how the business functions. It would be an easy transition.
Another option is to market your business to a competitor. While that may not seem like an appealing option, it can be a relatively easy one and often facilitates a quick sale. You should be aware, however, that a competitor may be looking for a lower purchase price if they plan on absorbing the location and clients into their enterprise.
Sell All or Part
You will also want to determine what parts of the business you will be selling. If you own the real estate, will you sell it or lease it to the new owner? Are there any physical assets that will not be included? If your business is not producing a positive cash flow, will you be selling only the hard assets? Remember, if the buyer purchases only the assets and not the business entity, you will remain responsible for any potential liabilities associated with the business.
Define Your After-Sales Role
Before you sell your business, you will want to think the business handoff. In many cases, the new owner will want to keep you involved in the daily operation of the business for a period of time, such as 6-months to a year, until they have learned everything there is to know. Are you prepared for such a time commitment? You may want to think about the training will be incorporated into the purchase price or if you will create an additional compensation agreement.
Create a Marketing Team
The next step to successfully selling your business is to build a marketing team.
Hire a Business Broker
First, you will want to seriously consider working with a business broker. They have the training, experience and network to get you the highest possible price while protecting your business confidentiality and reducing liability. Your business broker will have an extensive network of interested purchasers and a pre-established marketing plan. They will also skillfully negotiate the sale based on your terms and needs.
Locate a Business Attorney
Another important team player is the business attorney. They will work with you to draft or review all the legal documents. Your attorney will also help reduce your liability and ensure that nothing is overlooked during the sale of your business.
Validate Your Business Value
Before you can list your business for sale, you will need to set a reasonable price. This is a critical step that should not be taken lightly. While there are rules of thumb and industry net income multipliers, these are only as good as the starting financial statements.
Recast the Financials
Many business owners simply give interested buyers a copy of their tax returns. This is not a good business sales practice. Your business tax returns were prepared in such a way to make your business look as unprofitable as possible – so you pay less taxes. Now that you are selling your business, you want your financials to be an accurate picture of the true and realistic operation. This means that you will need to work with your accountant to recast the financials and remove things such as personal expenses, non-typical transactions, equipment depreciation and mortgage costs.
Establish a Range of Value
When establishing a value for your business, the best practice is to create a range of value rather than a single target price. One hundred interested buyers will not offer the same price, but most of them will be within 10 percent of each other. Work with your business appraiser to establish that range. The highest value is the list price; the lowest value is the least selling price; and anything in the middle is a fair price.
Create a Due Diligence Package
An often overlooked, but very important, step is to create a buyer’s due diligence package. The due diligence package will provide a serious buyer with a detailed overview of your business. It should include an executive summary, copies of incorporation papers, licensing agreements, employment agreements, property and equipment leases, warranties, operating permits and other similar documentation.
Enhance Your Business Value
One of the most profitable steps in the marketing of your business is the enhancement of its physical assets and business stability.
Repairs and Maintenance
When you spend so much time in an area, it’s easy to overlook its true physical condition. Now is the time to deep clean everything. A squeaky-clean restaurant kitchen will do wonders to back up your sales price. Make sure everything is repaired and that periodic equipment maintenance has been performed.
Another critical step to enhancing your business value is to make your business manager aware of your desire to sell the business – but also assure them that they play a crucial role in the successful operation and you hope they will stay on. This is the time to give them a nice healthy raise and get them into an employment agreement. A happy and talented manager is an awesome selling tool and a great security blanket for your buyer.
So, there you have it. Those are the critical steps that – if followed – will help you to create a successful environment to facilitate the quick sale of your business. If some of the steps seem daunting, have no fear, your business broker is there to assist you through this whole process.