Use this chapter as a checklist to stay on course during the complicated affair of selling your business.
The Eight Steps to Selling Your Business
As exciting as selling your business and moving on to your next adventure can be, it can also feel overwhelming. Follow these steps to ensure you stay on track and get top dollar for your business.
Decide on an Asking Price
The best way to start the business selling process is to figure out the value of your business and then to pick an asking price. Sometimes what you determine your business value to be and a strategic asking price might look quite different.
Estimated business valuations are a great way to get similar information with less investment of time and money. Here are a couple key points about estimated business valuations:
- They are based off of your financial statements, so it’s important that your financials are up to date.
- The cost is typically less than $1,000, and the person or business performing the valuation does not need to come on site to perform an inspection.
- You’ll receive different values based on different ‘approaches,’ which utilize different financial data.
You can decide on an asking price using the information from the approach (or approaches) that makes the most sense for your business, as well as market industry data, and the sales of similar businesses.
Follow the Exit Process
Creating an effective and actionable exit strategy is crucial when selling your business. Beyond actually selling the business, there are steps you need to take internally to ensure the hand-off of the company to the new owner is completed properly. For an in-depth review of crafting an effective exit strategy, see Chapter 2: Checklist: Creating an Effective Business Exit Strategy. Here’s a look at what’s included:
- Determine which exit strategy you’re taking. Whether you’re selling the business to a new owner, merging with a larger corporation, or going public, there are very different steps. Here, we’re focusing on selling the business to a new owner.
- Complete a pre-sale clean up. This includes things like optimizing your revenue, making sure essential staff is on-board and making sure your business and website are in prime condition.
- Create a customer communication plan. Well before the actual sale of your business, you should have a plan in place to communicate the transition of your business. This needs to be done in sync with the new owner to ensure that customers receive consistent messaging at all stages.
- Address tax considerations. Many business owners don’t know that even if they sell mid-year, there still may be any number of tax documents to be filed such as Form 8594, 941, 1099, etc. This is just one of the things that can come up during the sale of a business, which is why a CPA or tax attorney should always be consulted during the sale of a business.
Market Your Business
Once you have an exit plan in place and are ready to find the right buyer, it’s time to decide where you will market the sale of your business. Whether you’re working with a business broker or not, you may choose to use an online marketplace. These sites are specific to buying and selling businesses and have additional services such as helping to vet leads. For more information about where to ‘post’ the sale of your business, see How to Find a Buyer for Your Business.
Whichever website you use or even if you keep the sale of your business offline, there are a few key marketing tips to remember.
- If you have a physical business, take great pictures. The time and money invested in a professional photographer will be returned in the form of more interested buyers.
- If your business is online only, your website should look great. Make sure you’re using a platform that suits your business and has up-to-date information.
- Be able to tell buyers what makes your business unique and how it will stay competitive in the market. The ability to tell your business’s story is essential when talking to brokers and buyers.
Vetting Buyer Leads
Selling a business isn’t just about finding a buyer — it’s about finding the right buyer. Many people who reach out as interested in your business won’t be qualified, so it’s important to have a system down for vetting these leads. Start by creating a list of ‘weed out’ factors with questions about their time frame and financing specifications.
You can also ask buyers to fill out a pre-qualification form to ensure their seriousness about buying your business and their ability to do so.
Once you’ve identified a serious buyer and you’re both interested in moving forward, you (and your broker, if you’re working with one) should set up a meeting with the potential buyer.
Before you share intimate details about your business, consider having the buyer sign an Non-Disclosure Agreement (NDA). An NDA protects proprietary and/or financial information you may share during discussions with the seller. At this point, you can move forward with a tour of the business and more in-depth discussions about operations.
Keep in mind there will likely be many meetings and discussions in which both you and the buyer will be vetting the deal — this is usually not a quick part of the process.
Receiving an Offer
When a buyer is ready to make an offer, they will submit a letter of intent, which is a formal proposal of their offer in writing. Before accepting the offer and moving forward, you’ll want to carefully review every aspect of the letter, being sure to pay careful attention the price and payment structure, purchase exclusions or additions, requirements for the seller’s (your) future involvement, and any additional stipulations.
Once negotiations have taken place and you and the buyer agree on a price, you can then formally accept the offer. At this point, the buyer will make a deposit to secure the deal — typically about 10 percent of the purchase price.
Due Diligence is a normal part of any business sale, where the buyer performs an in-depth ‘investigation’ of the business. Similar to completing a home inspection before closing the sale, this is the buyer’s time to ensure they are getting what they expect.
As the seller, it’s in your best interest to have information readily available to keep the process moving forward. Information and documentation you’ll want to have on hand for the buyer includes:
- All financial data from the last several years (usually up to three years).
- Copies of executed legal agreements and vendor contracts.
- A client list and contracts if applicable.
- Building and equipment information.
- Management and operational documentation.
- List of current inventory.
Engage Your Attorney and CPA
With all of the steps, negotiations and documentation involved in the business selling process, it’s easy to feel overwhelmed. But it’s important to remember that one of the most important aspects of selling your business is protecting yourself and your investments — the business you worked so hard to build.
Be sure to engage your business attorney and CPA early and at all points throughout the selling process. Whether you’re preparing your financial statements, negotiating contracts, or filing your final corporate tax forms, seek advice from professionals who have your best interest at stake.
Having an actionable, executable plan in place is crucial to successfully selling your business. Follow the necessary steps, take your time, stay organized, and you’ll get top dollar for your wonderful business.