Considering how to sell a business should be a careful, step by step process. A business is a complex organism, so selling a business is a complex task: the business needs to be properly valued, the negotiation needs to satisfy both parties, and the multiple legal details and necessary paperwork need to be in order.
How to Sell a Business:
1. Properly value the business.
Your organization is your baby, which, even if you're ready to move on, makes selling your business an emotionally fraught proposition. You've put in a lot of strenuous hours ensuring your company got up off the ground, you've gone through growing pains, you've onboarded a great team: how do you put a price tag on all that? There are a plethora of details that go into a correct valuation. A few of the major variables include:
- The size of your business.
- Current profitability.
- Past and projected future growth rate.
- Market share and unique value.
Accurate valuation in difficult, especially when you're emotionally invested. If you find yourself having difficulty, you may want to consider hiring a qualified business appraiser, one familiar with your industry. A third party who's not emotionally invested can be essential in making sure you've not under- or overpriced your company.
2. Ensure your financial documentation is in order.
This is an easy step if you have a solid bookkeeper or accountant, but maybe not so easy if you've been managing your books on your own and are potentially behind on your financials. A buyer is understandably going to want clean books. You'll likely need to produce tax records going back several years, for a start.
In short, any potential buyer is looking for financial transparency, as no one wants any ugly surprises when they buy a business. Be sure you can present a clean set of financials when you sell your business.
3. Be sure you're showing profit.
Nobody wants to struggle, especially someone who's considering taking on a new business. Part of how to sell your business includes showing prospective buyers that it's currently profitable and that the means of profit is sustainable. While you may have been considering moving on for some time, that shouldn't mean you've stepped away from maximizing your business's profits.
When you begin thinking of how to sell your business, put yourself in the position of a potential buyer. You would want to be able to step in and take the company to the next level, not struggle to get it back to profitability.
4. Ensure your buyers are qualified.
Negotiating the sale of a business is a complicated, time-intensive endeavor. The last thing you want is to, in the final stages of selling a business, find out that your buyer is either less than serious or financially incapable. You can expect people to kick the tires, but do your own due diligence to ensure potential buyers actually have the mindset and the means to buy your business.
It makes complete sense that you're excited to sell your business, but don't let that cloud your vision. Ensure that your buyer has secured financing prior to getting serious about the sale.
5. Consider bringing in a business broker.
Selling your business is a complex process, and while it's tempting to navigate the process on your own and avoid a business broker commission, you may well find that making sure you have everything in order and that you've properly valued your business is an overwhelming ordeal.
With all the variables at play when you're juggling how to sell your business while you're running your business, having someone come in and address all the loose ends could be well worth their percentage. Indeed, a business broker could help you sell your business for more than you thought possible, providing more profit even when taking into account their commission.
Sites that List Online Businesses for Sale:
How to Sell a Business FAQs:
How can I sell my business fast?
First ask yourself how important it is to sell your business fast as opposed to selling your business properly for what it's worth. There are a lot of details that go into selling a business, and you don't want to miss something and have it come back to haunt you later. That said, you can accelerate the process of how to sell your business by making sure you're properly valued and marketing aggressively.
In addition, a qualified broker can help you sell a business fast, as they not only have deep knowledge of everything that goes into selling a business, but have access to marketing avenues and connections about which you may not be aware. A broker will also ensure you're getting the most out of the sale.
How much do brokers charge to sell a business?
As the seller, it's highly likely that you'll pay the brokers' fees. That fee is negotiated between the seller and the broker, but generally ranges from between 8 percent and 12 percent of the sale amount, with a minimum of at least $8,000.00 - an amount that will increase based on the selling price. For bigger deals the broker may be satisfied with a smaller percentage as long as the amount is above the minimum.
If multiple brokers worked on selling your business they'll typically split the commission, and if the buyer found your business through another broker, that broker and yours will typically divide the commission down the middle.
Ways to Market Your Business for Sale:
- Use local business ads.
- Advertise in trade publications.
- Hire a broker.
- List on online business marketplaces.
- Put out feelers in industry-specific forums.
- Discuss in business networking events.
How do I sell my business for what it's worth?
Valuing a business for sale is a complicated process, and there are multiple ways to approach it. One of the more straightforward methods involves adding the value of your assets both tangible and intangible (real estate and equipment, cash on hand, employees, intellectual property) then subtracting your liabilities (outstanding loans, debts).
Another method is to research your industry for comparable businesses that have been recently sold. Unless you have a firm grasp on all your business's financials, though, you may want to consider hiring a knowledgeable appraiser to help you with this step of selling your business.
How do I sell my share in a business?
If you're in a partnership and you'd like to move on, you should have an operating agreement to refer to. That agreement will spell out the terms of ownership and how much your share, or membership interest, is worth. It should also detail buy-sell provisions, so as long as you've properly valued your business it shouldn't be legally difficult to sell.
That's if everything mentioned is in place. If you don't have a buy-sell agreement, or you live in a state that limits an LLC's ownership transfer you will likely need to hire a lawyer familiar with how to sell a business. Another complication could be that your partner either doesn't want or isn't able to buy you out. The process works best if all interested parties are amenable to the sale.