If you’re thinking about selling a business and don’t know how or even where to start, don’t worry — we have you covered. Whatever the reason you have decided to sell your business, the most important action you can take right now is to learn the steps, from how to value a business to sizing up potential buyers.
The 5 steps to selling a business
Although the decision to sell a business can be emotional, once you’ve made it, the process is pretty straightforward.
- Get your paperwork up to date.
- Conduct a business valuation.
- Find and vet potential buyers.
- Negotiate the terms of the sale.
- Legal matters and tax implications.
Let’s look at each step on the way to selling your baby.
1. Get your paperwork up to date
Now is the time to make sure all of your financial records are accurate and up to date. Go back and gather at least five years’ worth of financial information.
Make sure your company has no hidden debts or lawsuits or settlements pending.
It is worth contacting the government to ensure that your taxes and all permits and licenses are up to date and valid. A clean financial situation is very attractive to a potential new owner.
Pull it all together in a sales booklet
Preparing a sales booklet that highlights your company’s inner workings is often a smart move. Many small businesses find this helps ensure a clean sale.
The sales booklet should include copies of your:
- Business taxes for the last several years
- Financial statements for the same period
- An up-to-date operating manual
- Current inventory lists
- A list of all the equipment that you’re selling with the business
It also makes sense to include other types of records such as a copy of your lease and lists of current customers, suppliers and repair personnel you have done business with in the past.
2. Conduct a business valuation
According to Quickbooks most small businesses “...should be worth three to six times [their] yearly cash flow…” While that sounds exciting, there is obviously a great deal of leeway with estimates as generous as that. And while they might have a general idea, few business owners really know how to value a business.
The overall market value of your company can be affected by factors such as:
- Number of employees
- Existing business contacts
- Current debts
- Goodwill your business has built up in your industry
This is why most business owners opt to have a business valuation specialist step in to go through financial statements and calculate the fair value of a company. After all, they are trained in how to value a business.
Once the valuation specialist has set a figure, they produce a written report outlining the specifics of the valuation. This should be added to your sales booklet.
You can easily find trained valuation experts through the Canadian Institute of Chartered Business Valuators.
3. Find and vet potential buyers
There are many ways to let potential buyers know you have a business for sale. You might use word of mouth, opting for the friends, relatives and colleagues grapevine or you could go online to advertise your impending sale. Newspapers or trade and industry journals and newsletters are also a convenient way to notify potentially interested buyers.
If you don’t have a business website, now’s the time to get one as you can reach far more buyers and investors online. You can get one up quickly with an easy site builder like GoDaddy’s Website Builder.
Decide if you want to work with a business broker
Another option is to hire a broker to sell your business.
A professional broker brings together the seller and the buyer in order to sell a business.
A business broker understands the complex nature of buying and selling commercial enterprises and can help you pre-approve buyers to avoid many of the common pitfalls that a first time seller is likely to fall into.
Another benefit of using a broker is the time and effort it can save you as the owner. Selling a company and vetting buyers on your own can drastically eat up your time and and distract you from the day-to-day running of your company.
4. Negotiate the terms of the sale
Once you’ve found a buyer and have done your homework to ensure that they will be a good fit for your sale, bring your lawyer, banker, broker and accountant up to date with the terms of their offer. As a team, their advice will be invaluable when it comes to negotiating the sale.
Knowing the strengths and weaknesses of your business positions them to help put your best foot forward when negotiating:
- Transfer timelines
- Arrangements for existing employees and employee entitlements
Conversely, if you are planning to sell your business because it is not performing well, or the industry is beginning to slump, always remember that honesty is the best policy.
Lawsuits for misrepresentation during the selling and negotiating period can be a major hassle.
It is a good practice to include provisions for what will happen in the case of inaccurate representation of finances (on either side) or if either party wishes to exit the sales process.
5. Legal matters and tax implications
Settling your company’s sale and ensuring that all of your legal obligations with regards to your employees and tax requirements have been met is absolutely vital.
While there is a lot of information provided by the government concerning the responsibilities of business owners, it can be very confusing to negotiate the different forms, requirements and deadlines. Paying for the advice and guidance of professionals is something most business owners see as a worthwhile expense.
How to sell a business explained
Having a realistic understanding of the viability and profitability of your company and being able to communicate this clearly to potential buyers is the basis for any successful sale. Assembling a trusted team of professionals can help steer you in the right direction and ensure that you are meeting all of your legal and tax obligations.
So step back and take a good hard look at not only your business, but the industry you’re in, your employees, your company’s prospects for future profits and your current bottom line. Then you can feel confident taking the next step in selling your business!