The Process for Selling a Business: How to Prepare
Owning a business is a fundamental part of the American Dream. Becoming a business owner lets you take control of your work life and sell products and services you believe in.
But, owning a business is also a lot of work. You may have reached the point where you can’t handle this work anymore. Or, maybe you’ve made enough money that you don’t need your business income anymore.
In either case, you may consider selling your business. Selling a business can relieve you of many responsibilities and free up your lifestyle.
Yet, selling a small business is also a process that requires lots of work. You may not even know how to sell a business yet.
Luckily, you don’t have to go through this alone! Instead, we’ll provide you with this “selling a business checklist” in our guide below. Let’s jump right into it, shall we?
How to Sell a Business: Get a Valuation
The first step in selling a business is to determine its value. So, to begin, find a company that can provide a professional valuation to assess your business’ worth.
This valuation provides you with a means for gauging offers from prospective buyers. This way, you can get an idea of what to expect to net from your sale.
Valuations provide other information as well, such as:
- Business market position
- Financial situation
- Strengths and weaknesses
Several sources can provide a business valuation. You can go to your local accounting firm to receive this information or find specialized brokers. Remember that the valuation company needs the most current national data trends for your industry.
This knowledge ensures this company provides an accurate valuation of your business. Finally, it also helps if they have experience selling businesses like yours.
Prepare Your Books When Selling a Business
Once you get a business valuation, start preparing your financial records. Most buyers for businesses want three years’ worth of financial information. Sometimes, they may want more than this.
So, gather your records and ensure they’re as clear as possible. It’s best to have your statements reviewed or prepared by an accountant, too. An outside professional will usually organize your data in a more accessible way than internally generated methods.
Make sure you gather your tax returns, too. Sometimes, these documents alone suffice for your prospective buyer.
Also, remember that some expenses may not be representative of your business’s profitability. You may have infrequent expenses from the last three years that the buyer should exclude when analyzing your cash flow.
For example, your business may have moved to another location. If so, you may have moving expenses that wouldn’t recur in other years.
But, your business may have nonoperational expenses each year, too. For example, your business may pay for your personal cell phone or automobile lease. Business owners must provide supporting documentation in these cases.
Talk With Your Financial Advisor
In many cases, selling a business brings tax concerns for business owners. Because of this, you may want to consult your tax advisor to plan for your future.
Your tax consultant can help you understand your personal and corporate tax situation in greater detail. From there, you can determine your options when structuring your business bill of sale.
Organize Your Legal Documents
Prospective buyers won’t just want your financial information. They’ll also want to see your legal documents, including:
- Incorporation papers
- Permits
- Licensing agreements
- Leases
- Contracts with customers and vendors
These documents help buyers verify your business dealings and ensure they’re legit. So, make sure you gather them together. Also, check that the documents are current and chronologically ordered.
Determine Your Managerial Succession
Many small business owners take a hands-on approach to running their business. They play a significant part in their day-to-day operations and oversee their progress.
If that describes you, then consider who can replace you. All the paperwork in the world can’t tell you everything about your operation. Personal dynamics and operational methods are often unknown to new buyers.
So, it’s imperative to find somebody that the new owner can turn to for help after you leave. Who fits that description? Who knows your operation better than anybody else and has the judgment to help oversee it?
Make a Good Impression on Buyers
At some point, buyers will visit your shop to see how it runs. When they get there, what will they see?
Will it be an orderly business with streamlined processes? Or, will they see a business in chaos?
Buyers look for a company that runs orderly and well. These operations usually indicate that the shop has a skilled management team overseeing the business. As such, buyers feel more secure in their investments.
Know Why You Want to Sell
Buyers look for a company that runs orderly and well. These operations usually indicate that the shop has a skilled management team overseeing the business. As such, buyers feel more secure in their investments.
This caution usually leads to buyers asking why you want to sell. After all, why would you give up a well-run and profitable business?
So, be prepared to give an answer to that question. Make sure it’s well-articulated and easy for buyers to understand.
Build Your Legal Team
Finally, it’s best for businesses to assemble a legal team they can trust. Look for lawyers and accountants with expertise in mergers and business acquisitions. These people can help you draw a solid contract and business bill of sale.
Also, consider using a business broker or investment banker to represent your business. These professionals can help you through the business selling process from start to finish.
Find a Business Broker To Help You!
Selling a business alone can be challenging. There’s a lot of organization you have to do, and it may be tricky to know how best to do it.
That’s why a business broker can be a tremendous asset to you. Fusion Business Services provides an integrated process to help you understand every aspect of your sale.
We work with you through every step of this progress to ensure you get the best deal possible. If that’s what you need, don’t hesitate! Contact us today to learn more about what we can do for you.