7 Tips for Selling Your Business

1. Update & Clean Up Your Financials

Accurate financial records are vital for a successful sale of a business, both to determine the value of the business when it is put on the market and for the buyer to review during Due Diligence . The buyer must be able to verify the actual cash flow (earnings) of the business.

2. Establish a Realistic Price for your Business

A reasonable asking price is critical if you are serious about selling your business. Buyers can easily compare prices of businesses for sale on business for sale websites. Businesses with higher than market value or high asking prices simply do not get inquiries, the buyers just move on to the next business. It is important to plan the timing of the sale in the highest performing years in order to obtain the highest price.

3. Financing

Most transactions have financing and there are really only two options available; 1) SBA Financing or Seller Financing. Our favorite financing method is SBA as they have preferable terms for buyers and, more importantly, it enables seller to get all cash at closing. SBA loans have a stringent process for approval, so it is imperative that a professional with SBA experience helps. While SBA Financing offers great terms, not every business will qualify as it is based on the cash flow of the business as shown on the tax returns. When SBA Financing is not an option the only alternatives are either Seller Financing or an all cash deal. While all cash deals can be common for very small transactions, it is uncommon for larger transactions. The amount of Seller Financing and terms varies and is typically negotiated with the offer.

4. Look at Your Business from a Buyer's Perspective

When your business is on the market, or before it is on the market, take an honest and objective look at it. Look at it from the eyes of a prospective buyer that is likely looking at several other businesses. Is it presentable, organized, does it look professional and well run? Surprisingly, or maybe not so surprisingly, these seemingly small things make a huge first impression and a big difference in successfully selling a business.

5. Continue to Run Your Business Well

With the business on the market it may be tempting to relax and maybe take your focus off the business a bit. In fact, this is a critical time for focus on the business and ensure it is running better than ever. When buyers look at the business they will be looking carefully at recent results and operations. Thus, recent performance will be an important factor in closing the deal.

6. Be Prepared to Negotiate

There will be negotiations. Of course price will be a key negotiating point, but there are always other negotiating points such as training time, inventory value, seller financing, down payment, equipment value, etc. This is common, we will guide you through the negotiations, and it is important to be prepared for them.

7. Prepare for the Transition

After on offer is made and accepted it's time prepare for the transition to the new owner. Of course the new owner doesn't take possession or control of the business until after the close of escrow, but you need to start preparing in advance.

There's a long list of things to do for the transition, too long to list here, but here's a brief list of common things:

  • Operations documentation and procedures
  • Employee lists and records
  • Vendor records
  • Contracts - this can be tricky as some contracts have a transfer of ownership clause which means you and the buyer will have to work with the vendor or customer to transfer the contact
  • Customer list and history
  • Training - the buyer will need training from you and your key staff to ensure a smooth transition