How to Sell Your Business: The Complete Guide

Common reasons to sell your business

There can be many reasons as to why an entrepreneur would want to sell his/her business, from retirement purposes to all the way up to illness. Given below is a list of such common reasons.

Retirement

The most common reason why owners tend to sell their business. They plan to use the money to fund their retirement so that they can relax and spend the rest of their left without the stress of running a business.

Although, some retirees tend to invest that money on lifestyle businesses since they are easy to run.

Poor performance

Some may decide to sell their business due to poor performance in sales and recurring customers. It doesn’t matter how much you persist if you don’t get any results. You would just end up wasting your precious time.

Let someone else have a go at it. You would be surprised to see the number of people who are willing to buy such poorly performing businesses with the hope of turning them into big brands in the future.

After all, the hard part is already done. Now they just have to maintain it and make some minor improvements.

Ill health

The majority of small businesses rely on the well-being and existence of their owner. Therefore, when the owner gets sick there is no one to manage the business.

And in the case of a surgery, the owner could use the funds received by the sale to cover medical expenses. Some sell their business due to those reasons.

Lack of interest

You may have simply lost interest in the business or in need of money to start a new business in a different market sector or industry.

Selling your business would be the best solution here since it’s most likely the biggest asset you own. Besides, it’s not fun to run a business that you don’t like.

Relocation

If you are required to relocate your business, it’s better to sell it and invest the proceeds in purchasing a similar business.

Why? Because relocating often requires you to fire the entire staff, hire new employees, sell existing property, buy new property, change suppliers and etc. This is too much work for a small business.

Steps to follow when selling your business

Determine the value of your business

You can’t just put a random number on the table. Doing so will result in either under-valuing or over-valuing your business.

Hire a professional business valuation officer to get a realistic estimation on the value of your business. They will take everything from outstanding debt to assets and receivables into consideration when coming up with an estimation.

Typically, small businesses are valued three to six times more than their annual revenue and things such as industry trends and market growth can impact the valuation as well.

Go through your business financials

Potential buyers will perform thorough due diligence on everything, from the business’s financials to its assets and liabilities. Therefore, you need to make your business financial statements and tax returns as clean as possible.

Check whether:

• Cash accounts are reconciled.
• Credit cards are reconciled.
• Fixed assets are capitalized.
• No personal expenses are present.
• No negative assets and liabilities are present & etc.

Cleaning up business financials will help you avoid any red flags that are bound to come up when buyers perform due diligence. Some buyers would request statements dating all the way back to three years and may ask for year-to-date results.

Boost your sales

One mistake all new entrepreneurs make is selling their business when there’s a decline in sales. No one would want to buy such a business. And besides, you won’t even be able to request a high price since the decrease in sales itself shows how desperate of a situation you are in.

So it’s better to focus on driving more sales to make your business more appealing to potential buyers.

Another red flag is when more than 20% of your income is coming from a single customer. So work on diversifying traffic sources and increasing your customer-base.

You could also re-paint the interior and buy some new furniture to appeal both customers and potential buyers. If you are a restaurant for example, you may consider updating the menu with stylish food.

Find a business broker

If you had no luck finding a buyer, consider turning to a business broker. Such a person would have access to a network of potential buyers for businesses in any industry and would perform the business valuation as well. This eradicates the need of a dedicated business valuation officer.

Business brokers will even list the sale in popular marketplaces since their goal is to get your sale in front of as many people as they can. The only downside would be the commission of a whooping 5 to 10 percent of the sale price.

Pre-qualify buyers

Don’t take the deal too far without first pre-qualifying the buyer. It’s easy to get excited when a huge offer comes in but first check whether or not the buyer has enough funds for the purchase.

Most of the time, they won’t and may need to rely on a bank loan, usually ones backed by the U.S. SBA or Small Business Association.

Banks may require you to put a portion of the funds to show that you are interested in selling your business to the relevant buyer. I would steer clear of loans if I can.

Get business contracts in order

There’s much to do in the legal side as well. Both you and the buyer will be required to sign the asset purchase agreement and the legal contract of the sale. The agreement will include the sale of intellectual property as well.

In case you are wondering what an asset purchase agreement is, it’s a document that includes non-compete agreements, asset listings, employee agreements and etc. You could get a basic one for under $1,500.

The buyer may require you to stay and consult their executive staff for a certain period of time as a regular employee.

Mistakes to avoid when selling your business

You are bound to make some kind of mistake whether big or small, especially if this is your first time selling a business. The tips below will help you steer clear of certain things.

Waiting too long to sell

This is the most common mistake on the list. Entrepreneurs who receive generous offers tend to reject them thinking they can sell their business for even more money in the future.

If your business grows substantially both in sales and popularity over the next couple of years, that’s great. However, that’s not always the case. What if the performance of your business drops instead? How can you make a higher offer claim then? And what about all the years of hard work?

You would then start to regret about the great offers you rejected several months or years ago. So don’t wait too long to sell your business.

Not planning ahead

No one starts a business with the intention of selling it in the future, I understand that. However, there’s nothing wrong with planning out the final stages of your business.

Be sure to keep your financials clean and diversify your traffic and income sources from the very beginning. That way you won’t have to do much when you decide to sell the business.

Another cool way to increase your claim to offers and win the trust of potential buyers is to write down the succession plan inside the business plan.

State that you would be willing to sell the business to someone else when the right time comes. This way buyers will know that you had actually planned this out and is not selling the business out of desperation.

Not finding the right broker

Don’t just pick the first business broker you see on yellow pages. Take the time to interview several brokers and figure out which one can give you the best results in the least amount of time.

Picking the wrong broker or consultant will waste both your time and money as you may not get even a single lead for several months. Choose a broker who has lots of experience in selling similar businesses and who can come up with a realistic price tag that’s appealing to both you and potential buyers.

Most importantly, check whether the broker fees are realistic and fair. It should not exceed 10 percent of the sale price.

Relying only on the business broker

Don’t rely only on the broker, especially when it comes to marketing and promoting the sale. You should do it yourself as well. After all, who is more motivated and passionate about your business than you?

Check whether anyone in your customer base and staff are willing to take over the business. At least they are not complete strangers to your business.

You could also publish traditional and digital advertisements regarding the sale and list your business in online marketplaces.

Overestimating or underestimating your business’s value

Overestimating the value of any business often leads to a dead end. No one would want to purchase a business that generates little to no income for a very high price. Always be realistic about the numbers you are bringing to the table.

That said, don’t lower the price too much as well. Why would you ever want to loose money willingly?

If the price tag is too good to be true, potential buyers will get suspicious and may decide not to go through with the sale. They will think you are hiding something from them or that the business is in such a desperate stage that you willing to sell it for a low price.

Consider everything, from assets and receivables to industry trends and market growth when deciding on the price tag. If you can’t do it yourself, hire a dedicated business valuation officer or ask the business broker to do it for you.

Alternatives to selling your business

Selling the business you worked so hard to build is not the only option available when things get tough. Try out the alternatives listed below before deciding to sell your business for good.

• Take a rest. Let someone else handle the business for a couple of days. This allows you to look at the business with a fresh set of eyes and who knows, you may even find a solution to the problem that’s causing you to sell the business.

• Refinance your business. Raise capital by remortgaging property and finding new banks to engage in credit card stacking. Bank loans may not be an option due to lack of business performance.

• Reschedule debt payments or make half-payments. See whether your lenders can change the monthly due date or allow you to make half-payments for the coming months. Some lenders may agree depending on the level of trust you were able to build.

• Bring new equity to your business by remortgaging your personal property, using your retirement savings or getting a family member, friend or firm to invest in your business.

• Create alliances. There must be other similar businesses that are struggling to survive as well so why not team up? That way you will be able to access the other business’s knowledge, experience, customer-base, technology and etc. And besides, it will be fun.

• Buy a competitor. Creating an alliance with a similar low-performing business is great but they may not disclose everything to you. That won’t be the case when you purchase a competitor and merge it with your own business. You will have full access to their assets such as knowledge, experience, customer-base, credit history and etc.

• Pass on the business to the next generation. Their young creative minds will allow them to see things that you couldn’t and implement new systems that will drive more traffic and sales.

• Create a personal advisory board with people who are more experienced and knowledgeable than you.

Conclusion

Selling a business can be a very challenging process regardless of the industry you are in. However, you can be assured that there will be buyers who are willing to buy it from you, of course, for a reasonable price.

Don’t wait until a defining moment comes to sell your business because you never know whether or not your business is going to crumble in the future.

Hire a business broker to get an estimation on the price tag for your business and find potential buyers at a faster pace. Naturally, buyers will be suspicious of the reason for selling the business so make sure you take the necessary steps to eliminate any fears they might have.

And unless you are too far into a deal, know that selling your business is not the only answer. Check out the list of alternatives given in this article and decide whether they are any better.

So were you able to sell your business? If so, what challenges did you face? Let me know in the comments section below.