Once you decide to sell your business, it’s time to take the proper steps to make sure you sell your company at the best possible price. A simple understanding of what you need to accomplish before you announce that your business is on the market can help you plan for every eventuality. Follow this checklist as you prepare to sell your business.
1. Determine the Value of Your Business
The first step to selling your business is determining its value. If you set the sales price too high, you’re unlikely to drum up any interest. If you set the price too low, you may have plenty of interest but could end up leaving money on the table. Typically, your business should be worth three to six times its yearly cash flow, but that’s a pretty big range, and you’ll need to be more specific when you put your company on the market.
Seek out a certified business appraiser to have an official valuation performed. A written valuation report can give potential buyers a sense of confidence while also allowing you to price your company fairly. The Canadian Institute of Chartered Business Valuators is a great place to find a respected professional to handle the assessment.
2. Get Your Financials in Good Shape
Any potential buyer will want to see all your financial documents. Prepare an informational selling packet that includes your business taxes for the last several years, your financial statements for the same period, an up-to-date operating manual, your current inventory lists, and a list of all the equipment that you’re selling with the business. Also provide random relevant paperwork such as your lease and a list of your current suppliers.
Be prepared to show your year-to-date results and account for all income and expenses over the last several years. Clean up your records by paying any past taxes, reducing debts, and settling any pending lawsuits.
3. Seek the Help of an Experienced Broker
Don’t try to sell your business on your own. Selling even a small business is a complex transaction, and having professional help can ensure you avoid pitfalls and make the best deal.
Hiring a business broker can make a huge difference in both the price you receive for your business and the amount of time the transaction takes. Reputable buyers may feel more comfortable dealing with a business broker who’s well-equipped to handle all the due diligence involved with the sale. Your business broker can tap into networks of possible buyers and help them connect to any needed financing. A broker can also help negotiate the actual deal. Business brokers often have attorneys on call to handle all the documentation required. The 5 to 10 percent of the sale price that you pay as the broker’s fee may be the best money you’ve ever spent.
4. Vet Your Potential Buyers
A prospective buyer for your business may need to take out a third-party loan for the purchase, so ask the buyer upfront to show financing approval and down payment availability before you spend too much time on the offer. Your business broker should be able to help you vet prospects.
Selling your business may take some time, but you want to follow this checklist to ensure you don’t overlook any important steps. If you want top dollar for your business, get your financials in order, seek the help of professionals to value your business and broker it, and make sure to do you due diligence on any potential buyers.1