Why sell your small business? People opt to sell their businesses for a number of reasons. Some of the most popular reasons for selling a small business include:
- Running the business is too burdensome
- A change of interests
- A lack of profit
- Business partners not seeing eye to eye
- Business is fairly successful and selling it can earn significantly more profit than keeping it
For the purposes of this guide, we will focus on selling a small business in order to make a profit. Below are 5 easy ways that you can sell your business.
Build it up to cash it in…
Starting a small business and successfully building it from the ground up is no easy feat. Yet, this is exactly what is necessary in order to be able to successfully sell your small business for a profit after some time. In order to successfully do this, it helps to do a few of the following:
- Increase your existing profits, and be able to project an upward trajectory.
- Build your customer base.
- Have consistent revenue coming in through diverse income streams, and the corresponding figures to show for it.
By ensuring that the above is in place, you will be able to attract higher profits from the sale of your business, as you would have increased the value of your business- relative to an owner who chose not to do any of the above. Having a major contract that is a money maker, and spans some time, is also a good place to start.
Get your proverbial ducks in a row…
- If you are preparing to sell your business, then chances are you will need to have all your business administration documents in order. These documents include everything from ownership documents, to insurance papers and accounting records. They should be updated and show your business affairs to be in good order. This way, when the time does come for you to sell, there is a smooth and relatively hassle free changing of the guard.
- In addition to building up your business (step one) and sorting your documents (step 2a.), it is also important that you make sure you have your marketing proposal(s) and sales pitches in place. Having these beforehand will help you fare better at the negotiation table when that time comes. The more familiar you are with your business, your succession goals, and your marketing pitch, the more confident you will be and the more attractive your business will be to the potential buyer.
- Of course, another important part of having your ducks in a row is getting a proper valuation of your business. This will help you determine the worth of your business in dollar value, helping you to set the best price for you and the market. By having a valuation completed, you give your listing price some credibility, and are unlikely to either price your business too high or too low. A local appraiser should be able to do the valuation for you, and draw up the corresponding document that lists in detail the business worth.
- Finally, you must build a succession plan, and decide exactly what it is you want to see for the business even after the sale is completed. Chances are, your business means more than money for you, and perhaps you would like some of what you worked for to remain with the company thereafter. Maybe it is that you want the staff to remain, or your business signs or something like that. Whatever your desires, it is important that you make these clear before you begin negotiations with any prospective buyers.
Evaluate your prospects and sell your business to the right people (at the right price) …
- When preparing to sell your business, timing is key. You would do well to start preparing to sell (starting with the above) a full year or two in advance. In doing so, you will better be able to put the steps listed for point one in place, and thereby improve your customer base (that is, the reach of your brand), as well as, your financial and business structure, and then have the documents to show for all your hard work. Additionally, waiting for the right time to sell your business is smart. Get familiar with your market and how it works. This will help you better decide when is a good time to sell your business and when it’s not. Generally, a stable market (or even right before a projected upswing) is an ideal time to try and get the best price for your business.
- You will be able to find potential buyers for your business in certain locales relative to you, depending on how much your business is actually worth. A fairly recent IBBA study showed that businesses valuing between $500,000 and $1 million US dollars, usually find their buyers within a 50-mile radius of its own locale; while businesses valuing $5 million US dollars, or more, are likely to find their buyers more than 100 miles away. Based on these findings, you can use your business valuation to help gauge just where your business falls, and what your next step will be. If your business falls in the $5 million range, be prepared to negotiate with larger, more sophisticated prospects that are highly financially driven.
Decide how you will sell your business…
Now that you are the actual point of selling your business, you ought to decide whether or not you are going to go with a broker, or try to sell on your own. There are pros and cons with each scenario of course. Selling on your own allows you to keep more money in pocket as you avoid paying a broker a commission’s fee. On the other hand, a broker may be able to wager a better deal than the one you are likely to get on your own. This is especially true in light of the fact that doing so helps to maximize his or her commission.
Handle the profits with care…
Once you have sold your business, your next step is putting the profits to good use. Details regarding the profits of your business are best made from the outset. Even so, it is advisable to wait a while before spending any of that profit. Be sure to handle any tax situation that may arise from this sudden influx of money, and decide how much can be invested in different wealth generating endeavors.