Preparing Your Small Business for Sale: How to Begin and Questions to Consider
Successfully selling a business requires careful consideration and strategy. It is not something you can do well on a whim or without a plan. Preparing the business for sale can be complex and multifaceted, and this article includes some initial steps small business owners can take to position themselves to accomplish their professional and financial goals by facilitating a successful transaction.
Establish Your Goals
Small business owners decide to sell their business for various reasons and with different priorities, and what constitutes the best-case scenario for a sale will be unique to each business owner. The first step in preparing your small business for sale is identifying the initial reason or reasons you want to sell and what you want the end result of the transaction to be. Here are some key questions to help you get started with the process:
- Are you an entrepreneur moving on to a new business venture, or are you planning to retire in the near future?
- Do you want to sell your business for the highest amount possible, or is it more important to find a buyer who will continue the business’s legacy in a way you approve of?
- Do you want to sell the business to someone you already know, such as a family member or current employee, or do you want to cast a wider net?
- Are you looking for a fast and relatively simple transaction, or would you feel more comfortable with a gradual transition of company control?
Establishing your goals for the sale of your business early on will enable you to pursue the options that best align with your priorities and more effectively negotiate for what matters most to you.
Organize the Business’s Financial Information and Increase Documentation
Interested buyers will want to look through several years of your company’s financial information to evaluate the business’s profitability before making their initial offer. Gather the business’s tax returns, internal financial reports, and other relevant financial documentation into a packet you can present to buyers. When compiling this information, ensure the documentation is well organized and accurate so prospective buyers can easily review the documents to find essential information.
In addition to compiling financial information, now is the time to make sure all other aspects of the business’s operations are thoroughly documented and organized, including processes and procedures, ongoing contracts, licenses, and legal documents. If you already have an established documentation system, verify that all records are up to date and highlight the business’s growth trajectory and potential. This information shows buyers how the company operates and builds their confidence in its viability and sustainability.
Evaluate and Increase the Business’s Value
Compiling the business’s financial information should give you a head start for this next step. You need to determine how much you can reasonably expect a buyer to pay for your business. This requires a thorough understanding of the business’s revenue and expenses, assets and liabilities, and market potential. A professional business appraiser can help you accurately assess your business’s worth so that you can confidently and effectively negotiate with buyers.
While doing this, it is a good idea to look for ways to increase the business’s value before the sale, such as by increasing and diversifying your customer base, offering new products, strengthening your management team, or improving your branding and visibility. By doing this, you may be able to boost profits, increase the stability and longevity of the business, or make the business more attractive to potential buyers. This process also includes identifying and addressing the business’s weaknesses with an internal audit. For example, you may find that your company should cut back on unnecessary business expenses, provide additional employee training, or focus on improving overall customer satisfaction to improve retention and loyalty. It is also a good idea to close out any outstanding invoices and pay off any debt so buyers can begin with a clean slate.
Seek Professional Guidance
Selling a business involves complex financial and legal considerations. You have likely never sold a business before and may only sell one or two in your lifetime, so working with professionals experienced in this type of transaction is prudent. Think about the areas you most need help with and seek the guidance of a trusted professional in that field. As previously mentioned, you may want to consult a professional business appraiser to accurately estimate the business’s worth. Additionally, an accountant may be able to help you organize and synthesize the business’s financial documents. You may also consider working with a lawyer who can help you review contracts and nondisclosure agreements with buyers. A business broker can guide you through the entire selling process and help you market the business to buyers. Finally, a financial advisor specializing in business exit planning can help you plan for how the sale of your business will affect your overall finances and can coordinate with the other professionals you consult to ensure they work together as a cohesive unit for your benefit.