Are you overworked or underwhelmed by your own passion for your business? Don’t just close up shop: Here’s how to sell your small business.
Whether from retirement or restlessness, illness or increased competition, there are many reasons small business owners decide to sell. And it’s not a bad idea: In 2019, the median asking price for businesses for sale in the U.S. was $285,000. That’s a nice parting gift from the business world.
Plus, when your heart isn’t in it, you could end up losing money instead of making it. If it’s time to say goodbye, here’s what you need to know to sell a business.
How Do I Sell My Business?
Putting a business on the market is a serious proposition that requires strategy, preparation and professional help. It doesn’t happen overnight. In fact, it could be a multi-year process, especially if you want to get the most out of the sale. Here are six steps to get you on the road to selling your business.
1. Build a Business Worth Selling
If putting your business up for sale is a distant dream of yours, now is the time to start that process. According to Digital Exits, the value of a business is usually worth two to 10 times its profit.
Clearly, it pays to get your business to be as profitable as possible. Devote more time to prospecting, developing robust internal processes and finding ways to grow. If you haven’t already, hire employees who can do these things for you, leaving you to take care of the executive decision-making.
Consider focusing on a niche market and finding as many clients as possible within it. Your existing contracts and client list will be extremely valuable to buyers when it’s time to put your business on the market. And if you have a physical workplace, consider sprucing it up so it shows well.
2. Get Your Financials in Order
Good “bookkeeping hygiene” is as important to running a profitable business as it is to selling it. For that reason, it’s helpful to establish good accounting habits early on, such as recording and categorizing your expenses, or keeping your payment records up-to-date.
When it’s time to put your business on the market, make sure your financial paperwork is clean. Income statement, balance sheet and tax returns are just some of the documents a buyer will want to review. Consider working with an accountant to review your current financials and ensure everything is in order.
Remember: Transparency is key. The more pristine your books are on the inside, the better your business looks on the outside.
3. Determine the Value of Your Business
When your business is profitable and your books are squeaky clean, it’s time to determine the value of your business. There are many factors involved with coming up with this number, including:
- Annual net income
- Assets (i.e., equipment, furniture, inventory)
- Cash flow
- Profit trends
- Customer base
BizBuySell, an online business-for-sale marketplace, recommends estimating the value of your business by using an earnings multiple. Typically, business values range from one to four times the annual cash flow.
It can be helpful to hire an attorney, financial adviser, business broker or appraiser who specializes in business sales to help you come up with a reasonable valuation.
4. Create a Selling Document to Attract Buyers
As a business owner, you probably understand the power of compelling marketing. Considering that this is likely the biggest sale of your life, it’s important to put some muscle behind it. Create an exciting proposal that can get prospective buyers excited about what your business has to offer.
Whether you list your business online or solicit a private sale through a banker or broker, you want to provide a “sizzle reel.” Think a video, well-designed website or sell sheet. Choose the format that helps make your business attractive to buyers.
Take the time to carefully curate all of the information a buyer wants to know. Make it easy for them to search for important details, like:
- Key financials (see above)
- Geographic information
- A thorough, well-written description of your operations, including:
- Number (and roles) of employees
- Client portfolio
- Business strengths, weaknesses and unexplored potential
- Overview of competitors
- Contact information
5. Put Together an Exit Strategy
When you sell your business, will you stay on during the transition? Or will you step away immediately to begin your next adventure? What happens after the sale is as important to think about as the sale itself, particularly if you have a team of trusted employees.
Before you even begin the sales process, think about how you’ll extricate yourself from the business itself. That might mean sharing your plans with long-time employees, clients and other stakeholders so they don’t feel blindsided. They may even be able to give you valuable advice and insights that will contribute to your valuation and sales process.
Think about how you want to leave this chapter of your professional life behind and put together a plan you feel good about.
6. Negotiate a Good Deal
In any sales situation, the best approach is calm and measured. Try to avoid a situation in which you need to sell your business by a specific timeline. And don’t pre-spend the sale money!
Instead, watch the market and get advice from a broker, appraiser, attorney or other professionals for the ideal time to list it. Be prepared to take your time. If you have a bit of a cushion, consider financing a portion of the sale to ensure you get the top price from potential buyers.
It’s also important to pre-consider the concessions you will make in the negotiations. Build in terms that aren’t particularly important to you so you have some negotiating room when it comes to ironing out a price and other conditions.
Sell Your Business and Reap the Rewards
Selling a business is a process that takes many months, if not years. It’s important to consider the big picture and create strategies that will pay off in long-term.
Just like running it, selling your business requires patience, commitment and hard work. Except at the end of the process, the work is not just beginning—it’s finally done. And here’s hoping you can use that hard-earned cash for your next adventure.
This post was updated in August, 2020.