Selling a small business can be an intricate undertaking that requires many factors. It may require you to employ an accountant, broker, or attorney. Profits will depend on the purpose behind the sale and how long it takes to sell, the effectiveness of the company's operations, and the structure. The sale of your business will consume a significant amount of your time. After the business has been sold, you'll need to find a way to manage the profits.
Reasons for the Sale
You've decided to sell your company. Why? This is one of the first questions that a potential buyer may inquire about. The owners of businesses typically sell their business for one or all of these reasons.
- Retirement
- Partnership disputes
- Death or illness
- Becoming overworked
- Boredom
Many owners think of selling their business if it's not earning a profit; however, this could make it more difficult to get buyers. Consider the company's capacity for selling, ability, and timing. Many aspects make your business look attractive, such as:
- Profits boosting
- Inconsistent income figures
- A strong customer base
- A significant contract that lasts for many years
Timing of the Sale
Plan for sale as soon as possible, ideally at least a year or two prior to the date. It will assist you in improving your business's financial records, structure, and customer base to make your firm more efficient. These changes will facilitate the buyer's transition and help ensure the business runs smoothly.
Business Valuation
In the next step, you'll need to evaluate the worth of your company to ensure you're not pricing the business too high or low. Find a business appraiser for a valuation. The appraiser will write an in-depth description of the worth of the company. This document can add credibility to the price and serve as a guideline for the listing price.
Should You Use a Broker?
Selling the business independently will allow you to reduce costs and avoid paying the broker's commission. It's also the ideal option when the business is being sold to a trusted family member or an employee currently employed. In other situations, brokers can free up your time to keep your business running, make the sale a secret, and secure the best cost (because the broker wants to increase the commission they earn). Talk about expectations and ads with the broker, and ensure continuous contact.
Preparing Documents
Make a list of your financial statements and tax returns from 3-4 years. Discuss them with your accountant. Additionally, you should create an inventory of all the equipment the company sells. Additionally, make lists of people connected to the sale transaction and other supplies and scour the archives for relevant documents, like the lease you're currently on. Make replicas of your documents and distribute them to financially qualified buyers.
The information package should include a brief description of your business's operations or an updated operating manual. Also, you should ensure that the company is in good standing. The areas in the business or equipment that are damaged or worn out need to be repaired before the sale.
Finding a Buyer
The right buyers could be a difficult task. Make sure you don't restrict your marketing to draw in new buyers. If you've got potential customers, this is how you can keep the process going:
- Find at least two or three potential buyers if the first offer fails.
- Keep in contact with buyers you might be interested in.
- Find out if the prospective buyer has the necessary financing qualifications before providing details about your company.
- If you are planning to finance the purchase, you should work out the specifics with an attorney or accountant so that you can negotiate a deal with the buyer.
- Give yourself some leeway to negotiate; however, you must insist on the price you think is fair and consider the company's long-term worth.
- Make sure you sign the purchase agreement in escrow.
There are a few documents after the sale:
- A bill of sale which transfers the assets of the company to the buyer.
- A lease assignment.
- A security agreement includes a seller retaining it with a lien on the company.
Handling the Profits
Make sure you have at least two months -- before you spend the proceeds of the sales. Develop a strategy that outlines your financial goals and find out about the tax implications of sudden wealth. Consult a financial advisor to determine how you would like to invest your funds and concentrate on the longer-term advantages, like being debt-free and saving to fund your retirement.
