Interested in selling your business? Maybe you want to change industries and tackle a new venture. Or maybe you’re ready to retire so you can enjoy the fruits of your hard work.
No matter the reason, you need to prepare your business before putting it on the market. Before you even begin speaking with potential buyers, there’s a lot of paperwork and organization that needs to be done.
Here are 11 crucial steps you need to take before you sell your business.
1. Get a Business Valuation
When preparing to sell a business, the first thing you should do is determine the value of your business. There are several factors to consider when determining this figure.
Tally your company’s assets – both tangible and intangible – and compare them against your debts. Remember, if you own the property where your business is located, that brings additional value to the deal.
Also, look carefully at your annual revenue. Other ways to determine your value include looking at your price-to-earnings ratio or your discounted cash-flow analysis.
For the most accurate valuation of your business, though, hire a professional.
2. Consider the Timing of Your Sale
Timing is everything when it comes to selling a business. How is the state of the economy? Is it strong? Is your industry generally doing well? If the answer to either question is no you might have a hard time finding a buyer.
Then, look at the state of your business. Is it doing well? Will it be an attractive opportunity for potential buyers?
Finally, consider whether the timing works well for you personally. Is it the right time in your life to sell?
The timing of when you sell will impact how much you make in the sale.
3. Organize Your Books
Any potential buyer will want to review your business finances. You can’t blame them for wanting to ensure your company is financially healthy. It’s a big investment.
If your financial statements are unorganized, it will bring down your value and possibly turn off buyers. So, you’ll need to update and organize your books as you prepare your company to be sold.
You’ll need at least three years of the following available at any time: federal tax returns, income statements, and balance sheets. There’s a long list of other items you should prepare as well, including a statement of your discretionary earnings for the last year, accounts receivable and payable lists, an inventory list, information on your current building (whether you lease or own it), an equipment list, outstanding loan agreements, existing liens, and a list of your products and services. Buyers will also want to see lists of your employees, customers, vendors, and distributors.
4. Determine Your Ideal Deal Structure
Establish the type of deal that will work best for you when you sell your company and include that structure upfront in the early stages of the process.
Many sellers prefer all-cash deals and might also consider financing the deal for buyers who don’t have the cash upfront. With interest, this, of course, means a higher selling price.
And some buyers might want to retain an interest in the business where they’re partially paid based on future earnings.
5. Write an Offering Memorandum
When selling your business, an offering memorandum or sales memo will grab the attention of potential buyers.
This document is essentially a listing of your business. It should include a description, basic financial information, asking price, and terms. Larger businesses might also include a list of assets, products and services, and other information.
Like a real estate listing if you were selling your home, this document should offer an enticing snapshot of your business.
6. Use a Non-Disclosure Agreement
There are many reasons you might not want word of your plans to sell your business to get out before you’re ready. Maybe there’s proprietary information involved or maybe you don’t want your financial information to be public.
A non-disclosure agreement will keep this information private. This document will be executed when you begin talks with a potential buyer and will protect you if the deal doesn’t move forward.
7. Develop a List of Potential Buyers
Create a list of other businesses that might be interested in buying your company. This list might include direct competitors to related businesses interested in expanding their product line. Or maybe you know of a similar company looking to enter your market for the first time.
Start with a larger list of specific companies. Do your research and as you get to know them, cross those that wouldn’t be a good fit off your list of possibilities. Then, determine the best way to approach the top businesses on your list about potentially acquiring your company.
8. Hire a Business Broker
While some owners might decide to sell their businesses themselves, others find the process overwhelming. For many, it makes sense to hire a business broker to guide you through the sale and act as a buffer between you and the seller.
Selling a business is a complicated process. Your business broker will handle the difficult pieces and make this life-changing transition a little bit easier for you.
9. In the Meantime, Continue Running Your Business
During the sale process, it should be business as usual. Don’t mentally check out or stop doing what you do just because you’re ready to move on.
Sometimes, it might take several years to sell a business, especially when you add the time it takes to prepare your documents and get your affairs in order. If you slack off, it could affect the valuation of your company.
10. Prepare for Your Emotional Response
Even if you know that you’re ready to move on, you might be surprised by your emotional response to selling your company. After all, this business is your baby.
You’re likely to feel a range of emotions, from excited highs to fear and grief. If you let your emotions get the best of you, it could affect the sale, though.
11. Create a Plan for Your Future
As you sell your business, you need to also think about what’s next for yourself. Do you want to start another business? Do you want to invest what you’ve made from your sale? Do you plan to enjoy your retirement?
Make sure you have a proper plan in place and tie up any personal loose ends before the sale goes through. This will help you acclimate to the transition.
Ready to Sell Your Business?
If you’re ready to make a change, let us help you sell your business.
Our process-oriented consulting firm has the knowledge, experience, and dedication to help companies like yours realize their maximum worth on the free market. We want to help you cash in on your hard work.