Selling your business is more than just making sure the offices are clean or that your website is working and user-friendly… there are a lot of considerations to take into account. You might need to hire a broker, accountant, and even an attorney as you go through the process of selling. One of the first things a potential buyer will ask you is why you’re selling. Depending on the reason why you’re selling, it could make or break the sell but regardless of your reasoning, if you put some strategy into your process, selling your business will be a smooth experience.
Know and Understand the Value of Your Business
Before you go and try to sell your business, it’s important that you know and understand the value of your business as well as have a fair and realistic view of your business. Because it’s your business, you might have a biased opinion your business’s value, and that’s why it’s best to hire an independent party to perform a market valuation.
You can also use four techniques to value your business if you choose to not do a market valuation but a market valuation is what will help you determine the strengths and weaknesses of your business. It will also give you a list of your most valuable tangible and intangible assets. For a thorough valuation of your business, it should take anywhere between 50 and 75 hours.
Also, be wary of brokers who offer free valuations. These brokers have a motive of getting a quick sale and what that basically means is that you’ll be paid significantly less than your business’s real value. A good rule of thumb is to keep your selling process and valuation process completely separate.
Get Your Accounting Records in Order
If your business is like most businesses, then your accounting record could stand for a little cleaning up. One of the quickest ways to put a bad taste in a potential buyer’s mouth is to have them examine your books and they find errors and numbers that don’t add up. To prevent that from happening, you’ll want to hire a CPA. If you don’t already have one, have them prepare annual compilations for the last year-end.
High performing businesses typically plan for five years before considering. They typically go for five years because it gives them the solid financial backing of five years to help their business be more appealing to potential buyers. Plus, according to the Small Business Administration, only half of small businesses survive the first five years. So if your business can survive at least five years, you may want to hang on to it.
Now, it might be a smarter business move to have your CPA prepare reviewed financial statements versus compilations because it will give the potential buyer a higher level of confidence in your business’s financial standings.
You’ll want to go through your corporate records to make sure everything is in order and up to date… The buyer needs to see that you have the right to sell your business. These things might sound a little “nit-picky” but you have to understand that not only is selling a business is a huge business venture but someone buying one is also a huge undertaking. Because it’s such a huge undertaking, just know that a potential buyer is going to scrutinize every little thing about your business.
From sales records and tax returns to accounting and corporate records, your business will be in the hot seat until a potential buyer feels comfortable and confident enough in your business to buy it.
Invest in a Business Broker
Trying to find the best broker can be quite the task but it can make a world of difference when selling your business. A good broker will be interested in every aspect of your business and learn its strengths and weaknesses. When searching for a broker, you want to find one who’s experienced and preferably in your industry.
When searching for a broker, you want to find one who will tell you what you need to know and not what you want to hear. Your broker should also be very detail-oriented. A lot of times, things sometimes go wrong last minute during final negotiations and that’s where your broker gets his fees so you want a broker who will be able to catch these things.
How the Potential Buyer is Going to Finance Buying Your Business
It’s already hard to find buyers as it is but it’s even harder to find buyers who are financially qualified. Knowing that your potential buyer is financially qualified to buy is really going to help the process go smoothly. Typically, your buyer will need to provide their own financial resources for any intangible assets of the company… these are called soft assets and commercial lenders don’t usually finance those types of soft assets (patents, proprietary product formulations, etc.). These assets aren’t usually found on the business’s balance sheet but you can look at it as a hidden asset, and sometimes those bring the most value.
So as you can see, there’s a lot to consider when selling your business but if you have the right strategies, you’ll be able to sell with flying colors.