10 / 09 / 2019
The “How to” sell a business.
By Gain Investors Staff
So you’ve made it big, or not, and are now looking for advice on how to sell your business. Well, first thing first: no sentiments. Your business, your baby sort of speak, is not as valuable to others as it is to you. Shocked? You shouldn’t be. The first thing you should be asking yourself is “How much is my business worth?” And, you need to be honest. Get multiple business valuation companies or experienced business brokers to calculate the value of the business for sale.
Generally speaking, the business value is based on your net cash flow and the industry you are in. For example, a service business that has $400,000 in annual cash flows could sell for $800,000 or $1.2 million, while a software company with the same cash flows could sell upwards of $3 million. What about the value of a small business that is losing money?
No easy answer here. The priority is to figure out why the business is losing money. If the answer comes from a temporary external factor, such as a weather disruption, it is sellable at a decent value. However, if your company is struggling because the product or service is no longer wanted by the customer, you will have to consider selling at a seriously low price and will also most likely have a problem finding a potential buyer. But despair not, your best bet is to still find a broker that will assess the problem.
Second step is to prepare for the exit. Are your financial statements ready to be inspected? What about other records that should be presented to the potential buyer? If you haven’t gathered all of these documents into a readable and understandable presentation, now is the time. You want to be prepared to answer questions when a potential buyer comes along. Remember, though, it could actually take up to 2 years to sell your business. So be patient and continue to add to these records on a consistent basis.
The third step, don’t step back from the selling process. So you’ve hired a broker and now you can relax, right? Wrong. Taking a step back at this point would be a huge mistake. Why? You are the best promoter. No one else is as knowledgeable and in the know as you about your business. Talk to your broker about being involved in the process first as you do not want to step on toes, but still want to get the word out. Maybe one of your employees would like to buy? What if you haven’t hired a broker, should you? There’s no clear answer here. You should definitely have had a few of them calculate the value of your business for sale. You can always post an ad that your business is for sale on websites such as Gaininvestors.com and see if there is any interest. But still, get the evaluation done. Do not sell yourself short or overshoot on the value.
What if you already found a potential buyer? You need to keep a few things in mind at this point. First off, pre-qualify the buyer. It is never too early and it may actually attract the buyer more. Remember that you will have to disclose confidential information to any potential buyer, hence, you do not want to disclose information to the wrong party. Secondly, do not misrepresent any information or you will open yourself up to a potential lawsuit. Thirdly, expect that you will stay on even after the sale to help the new owner, and possibly your ex-employees, transition smoothly. Staying on for the transition is also a major positive in the sale process. What mistakes should you avoid? Check out the article on entrepreneur for more information. Good luck!