May 20, 2017
10 Tips for Selling a Business
Many small business owners dream of selling their idea one day for a large sum, which they can then use to build other businesses or simply enjoy retirement. But when the time actually comes to sell their business, many small business owners find themselves overwhelmed. For most, selling their business is completely outside of the normal types of transactions they would normally partake in. Further, they are not sure of how to proceed or who to contact for help. If you are in this situation or are seriously considering selling your business, here are 10 tips to help you get the best price with the fewest headaches.
Prepare Early – If you’re already looking for a buyer, it’s too late for this, but if you’ve got it in mind in the short-term, begin preparing, now. You want to begin preparations at least two years early, so that you can begin putting together your financials, focusing on the most profitable sectors of your business, and cutting waste.
Cut Waste – When you go to sell your business, the buyer will not care about the great idea you had that never came to fruition. The buyer will also not care that you were only working ten hours a week and were paying someone else to do everything during that time. Your financials will be your financials, and that’s it. So the earlier you can cut waste and trim expenses, the more profitable you will be and, thus, the more valuable.
Keep Good Records – A buyer will not care what you claim – they will want proof. This proof will include invoices, bank statements, tax returns, etc. If you do not keep good records, you will not get top dollar. Prepare early, collect documents, properly declare your income for taxes, and you will be able to justify your valuation.
Know Your Business – You need to know your business better than anyone. If you are looking to sell, you need to know your numbers and be able to explain them. You also need to know the structure of your company and be prepared to answer a lot of questions. Buyers will want to fully understand what they are buying, and if you can’t explain it, they won’t buy it.
Have Your Business Valued – Don’t rely on the buyer to value your business. Don’t create a value on your own. Seek out and hire a professional to appropriately value your business. This ensures you are not overvaluing your business, the buyer is not undervaluing your business, and you have a reason for negotiating from where you are.
Hire Help – This can be in the form of a broker, a bank, or an investment bank, depending upon the size of the sale. But by including a third party, you are ensuring there will be no legal technicalities which arise at the last hour, that your contact is reviewed and binding, and that you get top dollar. Remember, whoever represents you is paid based upon the value, so they are as incentivized as you are to sell for top dollar.
Vet Your Buyer – Like a seller does when selling a house, ensure your buyer can actually afford your business before you go into contract. It is okay to request proof that the buyer or consortium of buyers can afford your business. The proof could be in the name – a large venture capital firm which deals in tens of millions of dollars in acquisitions, for instance, will likely be able to buy a business for $300,000. But if there is not a strength of name and reputation, then ask for either financials showing the assets or proof the buyer can get financing. You do not want to take your business off the market for six months during the negotiations, only to have the sale fall through because no one will write a loan.
Time Your Sale – We never know what the economy or market are going to do, however, we can usually get a good feel for when is a good time to buy or sell. Take account of market factors, the economy, similar businesses which have recently sold, and your recent sales when considering when to sell. If your sales are down 10 percent this year, for instance, and you know they will be back up, you may want to wait a year before selling to show that profits are back up. Similarly, if the economy is faltering and people are clinging to cash in an unsure environment, you will not get top dollar, because there will be fewer buyers. Think about when the best time of year is for you to sell, and go from there.
Hire a Qualified CPA – You will want a qualified, highly competent CPA to review your finances before the sale, review the terms of the sale with you, and help you to mitigate your taxes after the sale. A CPA is your best partner as a small business owner, and that only grows through the sale. Whatever it costs for full auditing and advice throughout the sale is worth it, because an error in your reporting could cost you money, or a deal if it looks like you were trying to manipulate the numbers.
Be Comfortable with Waiting – The right deal may not come right away. If you work in a niche market or if you are extremely efficient, you may have trouble finding a buyer. Venture capital firms look for quick turnaround projects, which would not be the case of an efficient business, and many small businesses sell to larger competitors, which you may not have in a niche market. Even if neither of those is true, it could still take a long time to find a good buyer. Be patient. You only get one chance at this, and for many, the proceeds must last through retirement. Do not get antsy and sell just because you finally get an offer. If you have a fair valuation, stick to it. Otherwise, you will regret it forever.
By following these tips as you go through the process of selling your business, you should be in a great position to get top dollar, quickly. Good luck, and happy selling!