In my case, I signed up with the first broker I spoke with. He seemed like the perfect person to sell my business. After all, he had a background in retail (and that was my industry), he was friendly and best of all he came up with a BIG price tag. Unfortunately, it was too good to be true because he was asking too much. By raising the price he got me to sign the contract but never made the sale. After six wasted months without even a lead, I finally decided to move on. Learning from my mistake, I interviewed 12 more brokers before signing another contract. The new broker had a more realistic approach and started to bring me leads within the first month.
18 Key Considerations to Make When Selling a Business
Selling a business is a significant step and one that entrepreneurs usually spend hours and hours agonizing over. There are just too many uncertainties when it comes to this transaction. Is the estimation of value correct? Are you exiting the market at the right time? How do you ensure that you get the amount that you think the company’s worth? Growing a business from humble beginnings to the point where it commands a decent value takes time, effort and a bit of your soul. For many small entrepreneurs, it’s like selling a part of themselves.
For an entrepreneur to be able to sell their company, they need to sever the emotional bonds they have with its growth and approach the sale more critically. The best way to do this is to examine the factors that go into a sale before even putting the business on the market. But what features are the important ones to consider, in this case?
Eighteen business owners from YEC delve into the elements they think entrepreneurs should consider before they decide to list their business for sale, and why those elements are so crucial to the decision.
Should You Use a Broker?
In other circumstances, a broker can help free up time for you to keep the business up and running, or keep the sale quiet and get the highest price (because the broker will want to maximize their commission). Discuss expectations and advertisements with the broker and maintain constant communication.
Gather your financial statements and tax returns dating back three to four years and review them with an accountant. In addition, develop a list of equipment that’s being sold with the business. Also, create a list of contacts related to sales transactions and supplies, and dig up any relevant paperwork such as your current lease. Create copies of these documents to distribute to financially qualified potential buyers.
Your information packet should also provide a summary describing how the business is conducted and/or an up-to-date operating manual. You’ll also want to make sure the business is presentable. Any areas of the business or equipment that are broken or run down should be fixed or replaced prior to the sale.
Handling the Profits
Take some time—at least a few months—before spending the profits from the sale. Create a plan outlining your financial goals, and learn about any tax consequences associated with the sudden wealth. Speak with a financial professional to determine how you want to invest the money and focus on long-term benefits, such as getting out of debt and saving for retirement.
How Do You Sell a Small Business Without a Broker?
While many people would like to avoid the 10% a business broker may charge, the risks of selling on your own may outweigh the loss of money. But if you’re going to go it alone, prioritize selling to a buyer you know, make use of the advice of experienced, retired owners and executives, and use all the internet resources available, such as the Small Business Administration, or the National Federation of Independent Business (NFIB).
How Do You Sell a Business Idea?
It’s possible to approach a company with a business idea, but first, you need to do your research, prepare a presentation, and research and approach potential targets. While some business plans are best protected with a patent, others can be secured by getting a potential company you want to work with to agree to a non-disclosure agreement.
What Are the Steps for Valuing a Business for Sale?
To value your business, you can turn to a professional business evaluator for an objective estimate of the value of the business. You can also determine value by determining the market capitalization, looking at earnings multipliers, book value, or other metrics.
How Much Does It Cost to Sell a Business?
If you go through a business broker, and your business is under 800 million, the broker’s commission is likely 10% to 12%. Other fees that can crop up include attorney fees, marketing fees, the costs of making any cosmetic or more substantial upgrades to your business so as to make it more sellable. There are also fees that may come up if you are transferring a lease to the new owner of your business.
How Do You Sell a Business to a Competitor?
How Do You Sell a Business Online?
Selling a business involves negotiations, discussions, and a lot of leg work. If it’s not possible for all this to occur in person, then certainly using services like Zoom or Skype to hold business meetings with potential buyers digitally is possible.
How Do You Sell a Business Quickly?
Even if you are selling to a close family member or employee, rushing through the sales process is not advised. However, if a relatively quick turnaround is needed, hire a business broker to speed up the proceedings.
How Do You Sell a Franchise Business?
You’ll need to work in conjunction with your franchiser, as they will need to determine if the new buyer is appropriate. Plus, that new buyer will need to sign a franchise agreement with the franchiser. There are a variety of fees and rules associated with owning or selling a franchise that can be found in the FTC’s compliance guide.
How Do You Sell Your Share of a Business?
Selling your share of a business to your other partners or partner is a common ownership transfer method, particularly for small businesses. Having an agreement in place with your partners ahead of the sale will help smooth the transition, increasing the likelihood that both the staying and exiting partners benefit.
Mistake 4: Asking Too Much or Too Little for the Business
Setting a very high or unrealistic price tag on a business can lead to a dead-end street. Expecting to get top dollar for a business that generates little or no profit is simply using bad business sense. Consider your industry, similar businesses, the economy and your marketplace when pricing your business to sell.
On the other hand, a business that does not generate profits may do well with a going-out-of-business sale. This type of sale can generate instant cash flow and quick turnover. Too many business owners that have not turned a profit, or have cash flow problems, miss this wonderful opportunity. Some reasons they miss out is due to lost energy and/or motivation or because they may not want to admit defeat or failure. Remember it is business—don’t worry about taking it personally. Look for the most valuable opportunities for your business.
Another mistake is to price the business too low. Often business owners will price their business low because they are burned out, suffer from an illness or did not get good advice. Do your homework first. Listen to brokers and consultants. Do research about other business sales before jumping in with both feet.
Mistake 5: Selling to the Wrong Person
Taking the first offer may not be a wise choice. This may not necessarily be your BEST offer. Selling your business for top dollar with little or no money down along with an extended contract may lead you to lose it all.
Business sales often go bad after the new owner takes over. The new owner may lack business experience, have a closed mind or be a poor leader. The list goes on and on. A successful business owner makes it looks easy, but change that mix and disaster may strike. When this happens, the new owner ends up going out of business and leaves the previous owner holding an empty bag. It saddens me to see a business fail after years of success due to this lack of business sale judgement.
Evaluate your options and make the best selection for the long term. Ask yourself, is this the best person to buy and run my business? Or, can they quickly connect with my customer base and learn how to market effectively? When the business sale goes as planned, it creates a tremendous opportunity for both business owners and the success continues.