If you’ve started a business and grown it from the ground up, you’ve accomplished a major achievement. However, you aren’t bound to keep your business forever.
You may want to sell a business — for example, if you’re planning to retire. Selling your company can bring you a nice chunk of change. That said, a successful sale requires careful planning. This guide explains how you can conclude a business sale with minimal hassle and stress.
Recognize the Signs That It’s Time to Sell Your Business
The most obvious reason to sell your business is if you’re ready for retirement. However, there are many other reasons why you might consider a business sale. Entrepreneurial burnout is one. Running a business is a huge job, and many people eventually get tired of the daily grind required. You may also decide to sell if you’re worried about business risks.
For instance, if business demand is starting to slow down, it may be time to get out of your industry. Selling now can save you financial worries later. A changing marketplace can be another impetus for change. New competitors may arise that make it harder to stay on top in your field. If you don’t feel like dealing with the hassle of competing, selling is your best bet. Finally, many entrepreneurs sell simply because their aspirations change.
Determine Your Business’ Actual Value
If you’re going to sell a business, you need to put a price tag on it. Suffice to say, this is easier said than done. Business value changes over time, so you need an accurate and up-to-date estimate of exactly what your enterprise is worth. The Hartford provides a comprehensive guide to figuring out how much your company is worth. There are a few different approaches you can take.
You can tally up all of the business’ assets, like equipment and inventory. It’s also possible to define value according to revenue, such as how much the business earns in annual sales. Another option is to use a price-to-earnings or P/E ratio. This involves estimating the company’s earnings for the next few years. If you aren’t comfortable with these processes, you can have a business valuation expert set a fair price for your company.
Take Steps to Prepare Operationally for Your Business Sale
Preparing for a business sale is a major endeavor. It requires more than financial paperwork, which is covered in the next section. Before you get to those administrative points, you have to ensure that the business itself is ready to hand over to another person or entity. Start with a comprehensive procedure manual. This should outline all the processes that keep your business running on a day-to-day basis.
You also want to prepare employees for the change ahead. In the interests of succession planning, you may want to promote current workers to more senior levels. This is especially critical if you currently oversee operations and have a hands-on role. If you sell the business and plan to step back completely, this gap needs to be filled. Alternatively, some people sell ownership of their businesses but stay on in an advisory role or as an employee.
Get Your Financials and Other Paperwork in Order
When you sell a business, you have to give potential buyers insights into your business’ financials. This means getting a lot of paperwork together. Some documents you’ll need may include profit and loss statements, cash flow statements, a current balance sheet, and business tax returns. You’ll also have to provide paperwork related to business expenses, like the commercial lease and insurance policies.
There is also paperwork to consider beyond financials. Take your company’s annual report, for example. If you are going to sell a business and are making changes to essential details like the business name, shares, or membership, all of this needs to be reflected in an up-to-date annual report. If you don’t file an annual report, you may be subject to fees and other penalties from your state or even lose your right to do business in that state.
Make Your Business as Attractive to Buyers as Possible
The entire point of selling your business is to make some money. Towards this end, you want to make your company as attractive to potential buyers as possible. One of the biggest things you can do to accomplish this is to assure the buyers that the business is likely to earn well in the future. Taking steps to raise your company’s profile, for example with better marketing and an improved brand reputation, is a great idea.
This will help to boost brand recognition and loyalty. If you can show potential buyers that you have a steady customer base of repeat buyers, you will be well-positioned to sell a business. The person investing in your company wants to know that they will get back the money they are putting in. A solid presentation that highlights your business’s unique selling proposition is essential to providing this reassurance.
Find a Viable Buyer for Your Business
As you can see, selling a business requires a lot of preparation. Now, for the hard part of finding an actual buyer. While there are online platforms where people can list businesses for sale, it’s often best to find a buyer through your professional network. Start spreading the word that you’re looking to sell, attend industry events, and ask competitors if they’re interested in buying you out. Such personal connections are often the easiest deals to close.
There are also professionals who specialize in buying and selling businesses, known as business brokers. If you don’t have the time or energy to look for a buyer yourself, you can entrust the job to this kind of expert. Once you do find a buyer, don’t jump on the first offer you get. You want to do your due diligence. This includes ensuring that the prospective buyer has the money to actually purchase the business as intended.
Settle the Details of Your Business Sale and Close the Deal
Once you’ve found a viable buyer, it’s finally time to seal the deal. Be warned, this will involve even more paperwork. If you have a commercial space, you will need to transfer the lease to the new owner. You also need to transfer ownership of securities, licenses, equipment, and other tools. Business contracts with existing customers need to be updated accordingly, as do employment contracts.
Intellectual property is also a major topic when concluding a business sale. If your business relies on proprietary formulas or devices, you have to determine whether these will be included in the business sale. If so, the IP rights need to be transferred accordingly. The same is true for copyright issues and brand names. For example, you may want to ask the new business owner to operate under a different name, safeguarding your own name.
Know When to Ask for Assistance
Selling a business is a major project. While it can be tempting to try to do it all yourself, this isn’t necessary. There are many skilled professionals who can help. For example, a bookkeeper or accountant can help you get the necessary financial paperwork ready. You can rely on a business broker to help you find an actual buyer. Finally, you should have a lawyer look over all the paperwork before signing on the dotted line.
There are also people who can help you after the sale of your business. According to All Business, after selling a company, entrepreneurs are advised to diversify their holdings, review their liability protection, and minimize taxes on the sale. Experts can help on all fronts. For instance, your personal financial planner and tax adviser can help with things like diversifying assets and minimizing tax burden, respectively.
Figure Out Your Next Steps
Selling a business is a complex process and can take anywhere from a few months to upwards of a year to conclude. Once you’ve concluded the business sale, you may be wondering what to do next. If you’re retiring, you can go ahead and relax. However, if you’re not ready to take that step, there are many other paths successful entrepreneurs can follow. You might become an angel investor and put money into other businesses, for example.
If you’re still feeling the entrepreneurial itch, you may also decide to start yet another business. Many people become so-called serial entrepreneurs, starting and growing a business before selling it and moving on to the next. This can be a great way to keep your professional life diverse, challenging, and exciting. Plus, now that you’ve completed one successful business sale, you’ll know just what to do in the future. It gets easier from here.
Building a business takes a lot of time and careful attention. The truth is that selling a business requires that same level of energy. That said, a successful business sale will put cash in your pocket and free up your time for other things. This guide explains how it’s done.
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