Selling a small business is a process that requires multiple steps. Also, proper planning is essential to maximize the returns seen. While selling a business may seem likely a complicated process (and sometimes it is) there are some tips that can be used to make things easier.
For any business owner who is ready to sell, one of the first step is to use a professional service like the ones over at CGK Business Sales. Some other tips to help with the sale of a business can be found here.
Tie Up Loose Ends
It is well known that if someone wants to sell their home, they have to get it in order, first. Most people would not expect potential buyers to be interested in a house if the roof leaked and the walls needed to be painted.
This same concept is true when selling a business. If the contractors are not clear or if the balance sheet needs to be improved, the business’s value will fall, often significantly. Be sure to handle everything like this before listing the business for sale.
Determine the Value of the Business
It does not matter while someone decides to sell their business, determining the value is essential. There are many moving parts but investing in a business valuation is essential. In the long run, this is something that will help to ensure the sale is as profitable as possible.
Unfortunately, if someone does not have experience or a background in accounting, they may not fully understand what goes into figuring out the valuation of their business. This is fine, but it is important to understand the basic process used.
Earnings before interest, taxes, depreciation, and amortization (EBITDA), and the business’s cash flow are the top factors used to figure out the valuation of the business. If a business has a high level of revenue but the free cash flow is minimal, the value of the business will be less.
Any buyer who is interested in the business will look at the non-financial aspects of the business, too. For example, is there a strong management team in place? Will the company be able to run without the owner?
It is a good idea to contact a professional business appraiser to receive a detailed explanation of what a business is worth. Trying to negotiate the sale is going to be easier when someone knows what the business, they have is really worth.
Request Offers to Buy in Writing
When (and if) a business owner begins to receive offers to buy the business, it is essential to make sure they are in writing. This will allow the business owner to make proper and accurate comparisons. The price alone is not going to be the only factor that needs to be considered. Instead, it is necessary to record all the details of each offer to ensure the one that makes the most sense. This is essential and may require the help of a professional who knows what to look at and how to compare offers to find the one offering the most value.
Don’t Neglect the Business When Trying to Sell
A mistake that many people make is that they focus on the deal and begin to ignore the business. This is an expensive mistake because the deal is not truly complete until all the paperwork has been signed. If the revenue for the company declines suddenly in the months that lead up to the sale, buyers may decide to come back to the table and request a lower selling price.
In the months that lead up to the sale, be sure that it is clear who will run the business and who is going to oversee sale negotiations. This is going to help ensure issues do not arise.
Be Sure and Ready to Answer Questions from Buyers
Before selling a business, a business owner needs to prepare to answer many questions from possible buyers. For example, most buyers are going to want to know the reason for selling the business.
Is it being sold because the owner has plans to retire, or are they selling because it is not profitable? It is also necessary to answer any in-depth questions about the history of the company, how the valuation was determined, and if the business can continue to run without the owner.
Make sure to be as truthful and upfront with potential buyers as a person can and do not try to avoid or gloss over the flaws. If a company is dealing with an issue, a potential buyer should hear about this situation from the owner who is trying to sell.
Create a Plan for After the Sale
When the business is finally sold, what’s next? A business owner should have a plan for what they are going to do once the sale is complete. Even if someone is selling to retire and spend time with their family, they should still have certain gains to work toward achieving. If they do not have this plan, the former business owner may find they feel bored and even depressed at times.
It is also important for a business owner to take some time before spending the profits earned from the sale of the business. This is going to give them the chance to know what tax responsibilities they have and to think through the financial goals they have set.
Selling a Business with These Tips
When it comes to selling a business, there are several important factors to keep in mind. With the information here, it is possible to ensure that the desired results are achieved and that the business owner gets the full value of the business. Remember, when someone builds a business through the years, selling it can seem difficult; however, it is possible to get what the business is worth -; and then some -; if the right tips are followed. Being informed is the best way to sell a business.