Selling Your Small Business – When and How?
Ready to Move On
Very few people start a business with the expectation of running it forever. Although there is always the possibility that your children will take over once you decide to retire, most owners are anxious to cash out and live the good life – or else sink some of that newly acquired money into another venture. Knowing when and how to sell your – and doing it the right way by avoiding the obvious pitfalls – can make the difference between turning a terrific profit or a so-so one, and perhaps failing to sell it at all.
Make a List and Check It Twice – And Three Times Is Better
There are many factors to consider once you have decided to sell your small business. Here is a list of four top-line questions, each of which will be answered below:
- When is the best time to sell?
- How do I decide on a price?
- Where do I find a buyer?
- Which experts should I consult before the closing?
When is the Best Time to Sell?
Everything being equal, the best time to sell your business is when money is plentiful, your company is booking lots of revenue, and the product or service you offer is in great demand. Since these factors rarely occur simultaneously, a more realistic approach is necessary. It’s always best to plan well in advance, since it is easier to get a good price if you are not forced into making the sale. The average transaction can take up to two years to consummate, what with finding a buyer, providing due diligence, arranging financing, and closing the deal. The more buyers you entertain, the better the price you can expect. By not taking the first offer that comes along, you will enjoy the greatest benefit from all your past labors.
How Do I Decide on a Price?
Your business is generally worth the total value of your fixed assets plus revenue. This is generally an easy number to calculate, but that doesn’t mean it accurately reflects the true selling price of your small business. One of the best ways to make sure you’re asking a fair price is to engage the services of a business appraiser. Not only will that person help you choose the right price for your type of operation and the market in which it exists, but the written appraisal can be a powerful sales tool to prove to buyers that you are indeed asking them to pay what the company is truly worth. Just the same, an appraised value may only be a great starting point. The true test of a company’s value is what an actual buyer is willing to spend to take it over.
Where Do I Find a Buyer?
First, you must understand who your potential buyer may be. Financial buyers are mostly interested in the cash you generate and therefore pay special attention to your balance sheet. Strategic buyers may be anxious to acquire your company to fill a niche their own business cannot satisfy, or perhaps they see a chance to take the business in a slightly different direction, thus finding it easier to acquire an existing business rather than starting one from scratch. There are two ways to find buyers – advertise on your own, or hire a broker. Plenty of businesses are sold on the Internet these days, and ads come cheap, whether in print or online. But a has contacts you can never hope to uncover by yourself, plus they will help keep your decision to sell confidential. There is no reason to clue in your competition, right? They will also explore who is a worthwhile buyer and who is only kicking the tires, which saves you time and allows you to keep your business running smoothly.
Which Experts Should I Consult Before the Closing?
You have engaged the services of a business appraiser to arrive at a reasonable selling price. Your has brought forward a number of potential buyers, and you have reached an agreement with one of them. Before signing on the dotted line, however, taking advantage of the expertise of several other professionals is vital. An accountant, preferably a CPA, will make sure your financial statements are in order. This not only satisfies the buyer, but also helps establish the value of the business when tax time comes around. An attorney will draw up the seller’s agreement and a myriad of other papers that are necessary at closing. He or she can also act in your interest ahead of the sale’s conclusion, making sure that you are protected all the way down the line. A banker is a valuable commodity if third party financing has been deemed necessary. Bringing your own financing options to the deal gives a buyer greater flexibility and increases the likelihood that a sale will take place.
Did you know you can sell a business for free at GlobalBX?