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How to Sell a Small Business
Starting and growing a business is hard work. From the initial idea to creating a product and building a customer base, it takes dedication through the years to see success.
Selling your small business can be a reward for all that hard work and a chance to get financial backing for the next phase of your life; whether it’s retirement or a new venture. It can also be an overwhelming task if you haven’t done it before. If you don’t know how to sell a small business, here are the steps you need to know.
1. Prepare Yourself Mentally
The majority of small businesses take 6 to 12 months to sell, and it can be a stressful process. It’s important to be mentally prepared before starting. Make sure you’re confident in your reasons for selling as that will help you stay focused on the outcome rather than the long process.
2. Prepare Your Business
Many experts suggest you start your business with the end in mind, knowing when and how you’re going to sell as you’re starting up. No matter what stage your business is in, you can take steps to improve the value of your business and its attractiveness to prospective buyers. Things like ensuring your customer base is diversified, protecting intellectual property, documenting processes and taking yourself out of the equation can produce huge dividends when negotiating the sale.
3. Prepare Your Paperwork
During the sales process you’ll be asked to provide legal and financial paperwork many times. It helps in the valuation process and is essential to the buyer’s due diligence before they sign the final contract. Take the time to gather the required documents at the start.
4. Get Your Business Valued
After doing the preparation groundwork, it’s time to have your business valued. There are different ways to value your business and it can be helpful to bring in an impartial expert at this stage. They will understand the different methods and the current market. The valuation is critical: you want a good return on your hard work, but you also don’t want to price yourself out of the market. Take your time with this step and make sure you get it right.
5. Prepare an Information Memorandum
Your information memorandum is a written overview of why your business is a good prospect. It's an essential marketing tool that provides a prospective buyer with information including business strengths, markets, products and competition. To keep details of your sale confidential, identifying information is often taken out of the memorandum.
6. Find a Buyer
A buyer can be found by advertising your business online, through existing networks or even among your employees. Take time to pre-qualify your buyers so you know they are serious about buying and can continue to build on your business’ success.
7. Finalise the Sale
The buyer must also take steps during this process – this is where due diligence comes in – and you're responsible for providing detailed financial and legal information for this step. You will also have to negotiate the terms of the contract and hand over essential information to the new owner.
8. Get Help
This could just as easily be step one as step eight and should not be left until last. You must continue running your business through this process, so bringing in a business broker can be key to minimising stress and negotiating a successful sale. A good broker knows how to sell a small business. They have experience in all parts of the process, including valuation, preparing information memorandums and keeping the sale confidential. They also have buyers on their books looking for a business, which could speed up the sales process.
Selling your business can be as complex as starting it was, but with plenty of preparation and a good dose of expert help, you can navigate the process with confidence.