This article is for business owners considering selling their business.
Selling your business is always a complex process that involves a wide variance of factors to be successful.
No two businesses are alike. And no two business sales are identical.
Every business has a different owner, a different corporate culture, a different financial position, a different history, and countless other market differentiators that make every business unique.
Because selling your business is anything but routine, or an exact replica of every other business sale, there are many challenges that arise.
A lot can go wrong before you close the deal, whether that’s failure to find a buyer, selling at too low a price, or running into complications during due diligence or financing.
To avoid complications, and ensure that your business sale actually closes, there are some important steps that you need to follow.
While the sale of every business is unique, there is a fundamental process that needs to be followed.
Here are 5 key steps you must follow to get your business from For Sale, to SOLD.
5 STEPS TO SELLING YOUR BUSINESS
1. Maintain Accurate Financials.
The No. 1 reason companies don’t sell is that the business has poor weak financials.
Weak financials refer to a lack of profitability (low margins or no margins), an abnormally high Cost of Goods Sold, inconsistent topline or bottom-line revenues, or not meeting industry benchmarks to name a few.
Your company’s financial data is the foundation of your future sale, so getting it right is critical.
A company’s value is largely based on the company’s financial performance.
Potential buyers will scrutinize your business’s financials, so your financials need to be accurate and up to date.
This is a must if you want to receive fair value for your business.
2. Get an Accurate Business Valuation
You might think you know the value of your business.
However, there is generally a fair market value for your company, and you’ll need a professional to help determine what that is.
Nothing stops a business sale from getting started or gets a business sale off track like an inaccurate business valuation.
Getting an expert to examine your business’s financial performance, cash-flows, historic sales and expenses, and anticipated performance over time can help you maximize your valuation without overpricing your business and scaring off potential buyers.
The valuation process includes an analysis of your company’s financials, products and services, business model, marketing strategies, and management team. Everything that is relevant to the current health and future potential for your business will be considered.
Following the evaluation, you’ll receive an estimate of what your business is worth and the amount you should expect to sell it for.
Below are some of the variables that may make your business worthwhile compared to your competitors:
Growth rate (faster growth equals a higher price)
Competitive advantages
Competency of the management team
Market share
The size of your company
Industry and business model
Capital insensitivity of the business
Sales and distribution
To ensure that you find the balance between receiving a high value for your business, while not over-valuing your business, it’s important to get a professional valuation from a professional business broker who is experienced with business valuations.
3. Hire a Professional Business Broker.
A Business Broker is not a realtor.
A broker will guide you through the complex business-selling process.
From determining an accurate value of your business, to creating compelling marketing material, and completing negotiations on your behalf, a business broker will get you the best value for your business.
So what should a good broker do? For starters, they should take the following actions:
Perform a business valuation and advise on a valuation range.
Maintain confidentiality.
Create a competitive deal process to have multiple bidders make offers on your company.
Organize due diligence efforts to ensure a smooth sale process
Connect you with qualified buyers
Facilitate buyers throughout the sales process
Lead negotiations on your behalf
Assist the buyer with obtaining financing
Coordinate lawyers, accountants and other advisors
Create the best deal
4. Find a Pre-Qualified Buyer.
As the seller, you should only entertain serious offers for your business.
How do you determine what constitutes a serious offer?
Buyers, however good their intentions might be, need to be able to follow through with a deal otherwise they’re wasting your time. Ask the important questions right away before you get your hopes up.
Here are some questions to pose to buyers from the beginning of any discussion:
Does the potential buyer have the funding they need, or are they pre-approved for that funding?
Does the potential buyer have experience in the industry, and do they generally know what they are getting into?
What are the potential buyer’s intentions for the business after they take over?
What is the timeline the potential buyer is considering?
If you want to sell soon, you might not want to deal with a buyer who wants to drag things out for over a year.
5. Finalize contracts and close the deal.
This is where most deals fall apart, and it’s the most complex part of the process.
You need to finalize legal contracts, deal with potentially messy final negotiations, and avoid the deal falling through at the last minute.
We recommend hiring a business sales lawyer for this stage of the process. You might want though your business broker.
Make sure they are thoroughly in your corner, as they will look over every detail in your contract. The slightest error can potentially sink the deal.
There are plenty of documents to prepare, gather and review, including the following:
Purchase Agreements
Bill of Sales
Representations and Warranties
Indemnification Clauses
Asset list and Transfer of Ownership
Intellectual Property Agreements
Employment Agreements
Escrow of the sale monies, transfer and closing
Depending on the size and complexity of your business sale, the legal and accounting work can be considerable. It is important to ask your business broker to coordinate these professionals to make sure that all legal and financial details are addressed.
Selling a Business is a Complex Process.
Most business sales are a complex process with many moving parts that need to mesh together for the deal to be completed.
However, if you follow the steps above, you will set your business up for a relatively seamless sale that gets you maximum value for your business.
Thinking of Selling Your Business?
If you are thinking of selling your business, contact the professional business brokers at:
Well written. Thanks for the important information.