How to Sell Your Business: A Step-by-Step Guide
Apr 06, 2021
Selling a business can be complicated. Take these five steps to simplify the process.
Most entrepreneurs don’t start a business with the idea of selling it. But at some point, selling your business may become an appealing option.
This could be due to new personal or professional goals, major lifestyle changes, or other factors. Over the course of a lifelong career, there comes a time where the sale of company ownership might make sense. And when that time comes, you’ll want to be well-prepared.
I Want to Sell My Business – How Do I Get Started?
Selling a business is a complex process. In order to ensure a smooth exit, you will have to start planning early for the eventual sale.
This gives you time to consider your values. You may want your legacy to have a lasting impact on the way the company works. You might worry about whether your employees will be taken care of after the fact. The more time you spend optimizing your company for sale, the better the results will be.
One of the most important aspects of the selling process is finding the right time to sell. If you sell a business when it demonstrates long-term growth, has no major upcoming investments, and has a strong team in place, you will leave it with much better long-term prospects than a business with structural uncertainties or declining sales.
An accurate and trustworthy business valuation can help you establish a plan for ensuring the legacy of your company and make improvements that will increase its value. Many business owners rely on professional advisors to walk them through the sale stages and help them identify the perfect window of opportunity for the sale.
The process of selling a business involves identifying its value, preparing documents, finding a buyer, negotiating the contract, and closing the deal. There are five key steps you can take to make this process a smooth one.
How to Sell Your Business in 5 Steps
1. Determine the Value of Your Business
Before you consider selling your business, you’ll have to know what the market considers a reasonable price for it. This typically requires a professional business valuation.
There are different ways to determine the value of a business. Individual buyers may prefer one method of valuation over another. A business accountant or advisor can help you identify the appropriate valuation and sale price multiple for your business. These figures will be based on comparisons between companies in your industry and your own proprietary resources and technologies.
2. Clean and Organized Financials
Your advisor or accountant will ask for a wide range of financial and administrative documents. All of these documents count towards the eventual valuation and due diligence of your business. Going through them all can be a challenging and time-consuming process, but it is also an opportunity.
Clean, organized financial data is absolutely crucial for the sale of your business. You will be better equipped to demonstrate its value if potential buyers can easily and quickly analyze the provided information. Organizing and presenting that data is part of due diligence. It includes earnings data and market studies as well as legal, compliance, and human resources reviews.
In the meantime, you should also drive sales while diversifying your customer base. Consistent recurring sales figures and reduced customer concentrations will help drive the value of your business up by demonstrating future growth potential.
3. Find a Good Business Advisor and Prepare Your Exit Strategy
Finding the right advisor to walk you through the steps to selling a business is vital. An experienced accountant, attorney, broker, or another qualified individual will help you plan your exit strategy and give you valuable advice on how to maximize your valuation.
If you still have to run your business’s day-to-day operations while optimizing it for sale, trustworthy advice can help you juggle these responsibilities while also finding and qualifying potential buyers. Don’t be afraid to ask for expertise from peers in your network who have been in similar situations. You should be able to rely on someone to give you valuable advice whenever you’re not sure how to proceed.
4. Pre-Qualify Your Buyers and Negotiate
Your advisor will help you identify buyers who may express interest in purchasing your business. There is a chance that these buyers won’t be individuals but other businesses or private equity firms. Selling business-to-business can be profitable for both parties and is increasingly common in markets where large, consolidated enterprises have an advantage.
The process of pre-qualifying buyers ensures you spend your time negotiating with people who are serious and likely to buy. Negotiations are part of what makes the sale of companies such a long process, and you want to maximize your time on ensuring the best outcome.
Three things to look for in a buyer are experience, capital, and motivation. Any buyer who lacks one or more of these characteristics may not successfully close the deal and continue your legacy.
5. Closing the Transaction
The final stage in the business-to-business buying process is to close the transaction. If your negotiations have gone well and there are no last-minute hiccups, you will be ready to sign the documents. But you probably won’t simply sign, collect, and walk away – there is plenty to do at this stage, especially if there are post-closing obligations.
The closing process is typically carried out through an attorney or escrow agent. Each party signs and sends documents as they become available and relies on the agent to serve as the middleman. This process can take a few days or weeks.
During this time, you will need to organize your customer and vendor contracts and finalize your employee communications. It’s important that you don’t surprise anyone with this move, especially if the buyer intends to maintain these relationships.
What to Do After You’ve Sold Your Business
Depending on the terms of sale, you may still be attached to your business in some capacity for a few months or years. Many business owners stay on as company executives or consultants, lending their experience to the new owners while staying out of day-to-day management. This often happens when the buyer is a private equity firm.
After completing the process of selling a business, most business owners do one thing – take a well-deserved vacation.