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7 Steps to Follow When Selling a Small Business

7 Steps to Follow When Selling a Small Business

Every small business owner pours their life into their business as there are a lot of hours, sweat, tears, and sacrifices needed to make a business successful. Knowing all of this work went into building a small business makes it harder to sell a business because, in some ways, it is an extension of your life. But, if the time has come to sell it, it is important that you follow the right procedure so that you not only get the right price for the business, but you also leave the business in the right hands.

Timing

It is important to prepare for the sale about two years prior to when you will sell the business. This gives you time to increase profits, put a good business structure in place, or even improve customer loyalty so you get a better price for your business.

Clean Up Your Books

In addition to your reason for selling, how your books look is one of the first questions any potential buyer will ask. So, before you start the process, you need to make sure your accounting is in order and that your books are clean and show clearly how the business is doing. Doing this not only helps the process go smoothly, but it is also a good way to ensure you get the right price for the business.

Since you might have a lot of people looking at the books during the sale, it is always a good idea to hire an accountant. Some of the information they will need is three years of tax return information and financial statements for the same period. Also, be ready to explain any losses and accounts for all incoming and outgoing cash.

Valuation

Although the buyer will likely bring in their own business valuer, you should determine your business’s value beforehand. Doing this will give you an idea of what to expect from prospective buyers. Calculating the value of a business involves some complicated calculations but, in many cases, the valuer will look at your income, assets, intellectual property, and anything else of value. The valuer will also look at your liabilities which they will subtract from their valuation.

To save you the trouble and ensure the valuation is done correctly, a business valuer like WA Business Valuations can step in on your behalf. Their team has decades of experience valuing businesses of various sizes, and WA Business Valuations prides itself on their speed, accuracy, compliance, and independence as an affordable business valuer in Perth.

Use a Broker

If you decide to sell the business yourself, you can save some money because you do not have to pay a broker any commission. This is the best route when selling to someone you know, like a friend or family member.

However, if you are still running the business while looking for buyers, it is always a good idea to use a broker. They will save you a lot of time, keep things quiet, and negotiate a good price for you. Remember that since the broker is paid a percentage of the sale, they will likely negotiate a higher price for the business than you would have.

Prepare the Necessary Documents

Next, you will need to gather all financial and tax records, or have your accountant have them ready. Then, you should have a list of all the assets the business owns. Creating a list of contacts (sellers, suppliers, distributors, etc) and preparing other paperwork like your lease agreement can also help keep things organized.

Have a Strategy for Spotting Real Buyers

Because you will be giving sensitive information to potential buyers, you should learn how to spot real and fake buyers. Try to limit the amount of information you hand out until you are sure the buyer is serious. Also, avoid giving out any information that is not explicitly requested.

A good way to protect your business information is to have a non-disclosure agreement (NDA) in place. This will forbid the transfer of your information to parties not involved in the sale. If you can, hire an attorney to help draft the NDA and enforce it.

To keep things moving in the right direction, always have two or three buyers in place and stay in constant contact with them. If you plan to finance the sale through a long-term payment plan, talk to your lawyer about it.

Make Sure You Can Get Paid

Once everything is in order, you need to make sure the buyer can actually pay for the sale. In the contracts you write, ensure you stipulate that you need to be paid upfront. Optionally, you can put in a payment agreement if you have one in place.

Getting paid upfront ensures you can walk away from the deal as soon as possible and can pay any fees associated with the deal.

Selling a small business can be very complicated. There is so much to do, but if you prepare the business in time, you will have to do very little to worry about once the sale process begins.


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by Rebecca Jones // Contributor to Businessing Magazine.

Opinions expressed by contributors are their own.