How to Sell a Business in 7 Steps
The process of selling a business is complex, and if you are the impatient type, it can seem interminable! Plan on the sales process itself taking 12 months. And then plan on another 12 months before that for preparation. That’s right: planning for a sale is just as involved as the sale itself. This is a critical stage as it helps you clarify your business’s value and position it in a way that maximizes value for your buyer – and proceeds for you.
7 Steps to Selling a Business
As with any complex process, the best way to proceed is step by step. When it comes to selling a business:
Start by Determining Your Company’s Value
It is important to separate yourself from emotion as you go through the process of selling a business. Value does not encompass sentimental value, the long hours you worked, or the sacrifices you have made. You need to get down to the hard numbers. This is where an objective third-party valuation comes into play.
This professional evaluates everything – sales, accounts payable and receivable, inventory, assets, liabilities, outstanding debts, and liens. Their analysis can help you identify areas of strength – and arguably more importantly, areas for improvement to boost your sales price.
Get Your Finances In Order
Prospective buyers are looking for a solid investment; they are also looking for red flags so they can avoid making a decision that comes to haunt them. Rest assured that they are seeking (and expecting) information about your financials, your real estate holdings, your equipment and inventory, tax positions, etc.
They are also looking for transparency. If they feel as if you are hiding something, the logical conclusion is that this is not the deal for them. Your finances need to be clean and clear for at least the last three years.
Work to Increase Sales
Obviously, this is advantageous to you as the current owner. But it also demonstrates to prospective buyers that your business not only has potential but that it is realizing that potential. If sales are stagnant or, worse, decreasing, selling is risky. Your price point will be much lower than you want.
Another red flag for buyers is if a single customer accounts for more than 20% of your revenue. If that business is lost (as is a very real possibility in a sale situation), they are wary of taking on that risk.
Two steps here: strengthen your marketing and advertising positions immediately, and be sure you are reaching out to a more diversified customer base.
Have a (Realistic!) Plan
You may have started your business with the intention of passing it on to a child. You may have planned to stay in it till the end. But life and circumstances and goals and needs can change. Plan for it, and then make a Plan B for it. The worst position you can find yourself in is being forced to sell. You will almost inevitably see fewer proceeds.
Have a succession plan in place if you want to pass the business over to an “insider.” If you are looking for outside buyers, allow yourself ample time to work the process. Remember, you’re looking at two years, give or take, from beginning to end.
Connect With the Right Broker
As an owner, you have worn many hats. Business broker probably wasn’t one of them! This is an important relationship to forge now. Your broker can help cross a number of items off your to-do list, including business valuation, preparing a prospectus, listing the business, reaching into their network to engage potential buyers, conducting due diligence, negotiating, and more.
Dot the Legal I’s and Cross the Legal T’s
The process of selling a business involves a variety of legal intricacies. There are agreements that cover everything from asset listings and purchases to guidelines around the use of domain names. These are typically included in the asset purchase agreement, but you also need to think about the sale of stock, as well as any period of overlap. In many cases, part of the sales agreement requires existing owners to stay on with the new owners in order to effect a smoother transition. You want to slide out as soon as you can.
There is no reason to do this alone. While this may be your first time selling a business, you do not have to reinvent the wheel. Others have done it, have done it multiple times, and have done it well! Leverage their experience and expertise when preparing your business for sale and going through the process of selling your business.
AMB Performance Group specializes in providing businesses with the guidance, support, and solutions they need to run successful companies today and position themselves for a profitable transition tomorrow. If selling is on the horizon for you, start preparing. Contact our team today.