If you are thinking of selling your small business you’ve got some work ahead of you. A little hard work now, with the help of a small business lawyer, can save you from plenty of trouble later on.
Tip #1: Decide why you are selling
Buyers nearly always want to know why you are selling the business, so figure out what your motivation is … retirement, partnership disputes, illness or death, overworked, ready for a new challenge. Keep in mind that the Buyer is going to be suspicious of whatever reason you give so stick to a supportable claim.
Tip #2: Prepare for the sale
Smart business owners begin preparing for the sale of their business two years in advance and we suggest you do the same. Starting early can help you complete all the steps below — steps which will make your business as attractive as possible and ease the transition for the new buyer. More often the decision to sell is made because of external factors, e.g. health, turn of the economy, etc. which puts you in a disadvantaged position to get the best price.
Tip #3: Business valuation
Have an valuation done on your business to decide what it is worth. The document will bring credibility to the asking price and can serve as a gauge for your listing price. Yes, it can be costly, but not compared to the increase in value your will receive. It can also be used to identify weak spots in your company that you can address before going to market.
Tip #4: Sell by owner or broker
Decide whether you want to find a buyer on your own, or work with a broker. Selling the business by yourself may save you the broker’s commission, but it may mean a whole lot more work for you in an area you know nothing about. You’ll have to decide the best use of your time and money. There are some very good experienced business brokers out there. Interview several.
Tip #5: Sort out your property/space
If you have an interested buyer, one important thing to do is look at the lease on your property. Check the requirements regarding the assignment of the lease to a buyer of the business. Then check with your landlord to see what he or she requires in order to consent to an assignment of lease to your buyer.
Tip #6: Make it profitable
Some owners consider selling the business when it is not profitable, but this can make it harder if not impossible to attract buyers. Consider the business’s ability to sell, its readiness and your timing. There are many attributes that can make your business appear more attractive, including:
• Increasing profits
• Consistent income figures
• A strong customer base
• A major contract that spans several years
In addition, do a search to find out if you have any outstanding liens (on taxes or equipment, for example) and pay them or disclose them to the buyer.
Tip #7: Put your books in order and Review your ongoing contracts
Many small businesses do not a good job of keeping corporate and financial records in order. Before you list the business fix this because an educated Buyer is going to want to examine everything. Also, have your small business lawyer review any contracts you have with vendors, service providers and large customers to make sure nothing stands in the way of your sale. Lastly, if you have been keeping two sets of books, you are committing tax fraud and if a Buyer gets a wiff of that, no sale.
Tip #8: Review assets and tax consequences
Create a list of all your assets and review the list with your accountant and attorney — that way you will know what the tax consequences of the sale of your business will be. There is a tradeoff between income taxes and capital gains each of which can affect how much you will finally net from a sale. Prepare proper financial statements to present to your prospective buyer. You should also consult with a CPA to get advice on potential tax consequences.
Tip #9: House cleaning
Just as if you were putting your own home up for sale, your business needs to look its best. A lot of cleaning and some staging can go a long way to attracting a buyer. This also includes organizing your operations and procedures manuals and making sure everything is running smoothly day to day. Just like a home buyer is attracted to a turn-key home, so a potential buyer is attracted to a turn-key business.
Tip #10: Prepare yourself mentally
You’ve put a lot of blood, sweat and tears into the business, so get ready emotionally for the sale. If you are too attached, this is going to be a very difficult process. Instead, think hard about what you are trying to accomplish with the sale and what your plans will be after the sale. In short, think to the future and don’t dwell on the past.
Last but not least, it may take six months to two years to complete the sale of your business. There will be frustrations and anxiety. Prepare yourself ahead of time to be patient.