So, you’ve decided to say goodbye to your business.
We get it, it’s a big step, and you want to get it right. Selling your business isn’t as simple as shouting from the rooftops and handing the keys to the first interested party.
Remember, selling a business isn’t a sprint; it’s a marathon. You’ve got to think about timing the sale just right, ensuring your business is in tip-top shape, and not leaving any money on the table.
So, if you’ve decided it’s time to pass the baton, let’s walk through this eight-step map to ensure your business sale journey is on the right track.
Over the past two decades, our team has launched and sold various businesses, each serving as an invaluable learning and growth experience. In addition to contributing to several leading publications and our crowdspring blog, we’ve had the opportunity to share our knowledge with thousands of aspiring entrepreneurs globally, mentoring them through platforms such as Techstars and Founder Institute. This blend of expertise and business acumen gives us a distinctive viewpoint on the triumphs and challenges of starting, growing, and selling businesses.
How To Sell Your Small Business
- Identify your reason for selling
- Ensure that all documents are clean and organized
- Start preparing early
- Estimating your business valuation
- Deciding whether to hire a broker
- Scout qualified buyers
- Prepare the documents to close the deal
- Be wise about spending your profits
- Key takeaways
- How to sell a business FAQs
1. Identify your reason for selling
One of the first questions a potential buyer will throw your way will be, “Why are you selling?”
After all, they are eager to start their entrepreneurial journey with your business and might be puzzled about your decision to part ways with it.
So it’s critical to nail down your reasons and be ready to share them when asked.
Typically, people sell their businesses due to:
- Health issues or bereavements
- Approaching retirement
- Feeling overwhelmed with the workload
- Conflicts amongst partners
- Loss of enthusiasm
Regardless of your rationale, ensure it rings true and doesn’t wave red flags to your potential buyers. For instance, it’s not the best idea to admit that your business is sinking – that’s likely to make buyers take off faster than a hat in the wind.
Instead, home in on the business’s winning features and unique strengths and underscore its growth prospects. Make a potential buyer see the potential goldmine they’re about to invest in.
Tout some of your business’s stellar qualities when pitching it to prospects. Perhaps it’s a devoted customer base, a steady revenue stream, or accolades your business has racked up over the years.
Remember, the effort and dedication you put into your business now can directly impact the price tag you can command when it’s time to sell. So, it’s worth doing your best while you’re at the helm, ensuring you reap the best possible rewards for your blood, sweat, and tears.
We won't ask for secrets or specifics.
2. Ensure that all documents are clean and organized
Being a business owner isn’t just about the grand ideas and the exciting pitches. It’s also about keeping things tidy behind the scenes.
Organization isn’t the most glamorous part of entrepreneurship, but it pays off when it’s time to sell.
Your knack for keeping business operations streamlined, documents updated, and finances in check will not only keep your business shipshape, but it’s also likely to pay dividends when you’re ready to sell.
Keep your financials robust by ensuring your taxes are paid on time, and profits are indicated on your tax returns. Remember, your business’s financial health is one of the sexiest things to a potential buyer and can help you bag the maximum profit when selling.
To size up your business’s worth, ask yourself a few key questions:
- What sets my business apart? What are its strengths and weaknesses?
- Does my business own any intellectual property that adds to its value?
- What’s the special sauce that makes my business unique and ups its value?
- What trends in the market could impact the future value of my business?
- Have I diversified my customer base, or is my business too reliant on a few key clients?
- Is my business’s brand strong, and does it have a good reputation in the market?
- How does my business stack up against the competition regarding market share?
- Are my business processes efficient, and can they be easily transferred to a new owner?
- Does my company have a strong, competent team in place?
- Have I made significant technological investments that enhance my business’s capabilities or efficiency?
Remember, the more you know about your business, the better your position will be when it’s time to sell.
Don’t forget when you present your documents to a potential buyer, you want them to be clean and well-organized. Keep the language simple and ensure any fine print is crystal clear to avoid buyer confusion. It’s all about making the process as smooth as a fresh jar of peanut butter.
3. Start preparing early
Preparation is the secret sauce to selling your business successfully. The earlier you start, the better.
Ideally, start your prep work a year or two before the planned sale date. That way, you can take care of all the big stuff, like sprucing up financial records, strengthening your customer base, and more.
Boosting company performance is also crucial. You demonstrate to potential buyers that your business is a well-oiled, profitable machine by fine-tuning every department, enhancing marketing efforts, and polishing business operations.
Remember, you’re not just selling a business; you’re selling to a customer. Don’t skimp on the details – the more you have in order, the smoother your negotiations will be.
4. Estimating your business valuation
As business owners, we’re prone to believe our businesses are priceless. After all, it’s a labor of love – you’ve poured countless hours, resources, and energy into keeping it afloat.
But potential buyers won’t see your personal journey as a value-add. They’ll size your business by its profits, losses, successes, and other vital stats. Hence, bringing in an expert to estimate your business value and help determine the correct price tag is crucial.
These experts will evaluate your business by:
- Scrutinizing your company’s financials
- Evaluating your goods and services
- Assessing your business structure and management
- Reviewing your marketing strategies
- Gauging your future potential and overall business health
You’ll then get an estimate or range of your business’s value and the selling price, often based on your profits and the market value of similar recently sold companies.
And remember, specific attributes can make your business shine brighter than the competition:
- Stellar management and departments. An excellent team is a significant asset. Whether it’s an offline business like a restaurant, where the kitchen and front-of-house teams function seamlessly, or an online business where the product and customer support teams ensure a top-notch user experience, quality management is critical.
- Market share and company size. The larger your market share, the more attractive your business is. A brick-and-mortar clothing store with multiple locations has a more significant presence than a single boutique. Similarly, an e-commerce site with a broad customer base across different regions will appeal more to buyers than a niche online store.
- Robust sales and distribution channels. Your business’s ability to sell and deliver products effectively can significantly increase its value. This could mean having a popular location and reliable delivery service for online orders for a physical bookstore. A digital product like an app could mean having effective online marketing and distribution through major app stores.
- Efficient use of capital. Businesses that generate higher profits with fewer resources are more appealing. An offline example could be a catering company that uses locally sourced ingredients to reduce costs. An online business might use effective SEO strategies to drive organic traffic, reducing the need for expensive advertising.
- Consistent growth rate. A history of steady growth can make a business more attractive. An offline business like a salon could grow by expanding services or opening new locations. An online company could demonstrate growth through increased web traffic, subscriptions, or sales.
- Unique products or services. Offering something that no one else does can make your business stand out. An offline bakery might offer a unique pastry that people travel miles for, while an online education platform could offer a course on a topic not widely covered elsewhere.
- Scalability. Businesses that have the potential to grow quickly and cost-effectively are often attractive to buyers. An offline cleaning service might have developed efficient processes and a skilled workforce that could easily be expanded to new locations. An online drop-shipping business could scale quickly by adding new products or tapping into new markets.
- Strong brand and reputation. A well-known brand can command a higher price. An offline restaurant might be known for its superior service and quality food, earning a stellar reputation. An online business could have built a trusted brand through positive reviews and customer testimonials. If your brand has lost some zest, consider rebranding to breathe new life into it. A fresh company logo, updated brand colors, or a new website can help refresh your company’s brand identity and increase the value of your business.
- Stable and recurring revenue. Businesses with a steady income are often more valuable. An offline fitness center might have members on yearly contracts, providing reliable revenue. An online subscription service will have a clear view of future income from its subscriber base.
- Proven profitability. Buyers will be interested in businesses that demonstrate they can turn a profit. An offline boutique might source unique but affordable merchandise and sell it at a premium. An affiliate marketing site could show profitability by maintaining a high click-through rate and strong relationships with partner companies.
Remember, each attribute adds value to your business if you decide not to sell it, making it more attractive to potential buyers.
5. Deciding whether to hire a broker
Selling a business isn’t a walk in the park. Bringing a reliable broker on board can help you navigate the process.
Brokers do the heavy lifting when it comes to selling your business. They’ll guide you through the proper selling process, help with the necessary documents, and provide support in all aspects of the sale.
Some of the tasks brokers perform include:
- Conducting a business valuation. Brokers assess your business’s value based on financials, market presence, and other tangible and intangible assets. You may have already performed a valuation if you wrote a business plan and brought investors on board, but you’ll need to do an updated valuation when you sell your business. For instance, a broker might assess a brick-and-mortar retail shop based on its sales, location, and customer loyalty, while an e-commerce platform would be evaluated based on its traffic, conversion rates, and user engagement.
- Facilitating potential buyers. Brokers have a vast network and can connect you with potential buyers you wouldn’t reach alone. For a physical restaurant, they might bring in a buyer interested in expanding their chain. For an online blog, they might find a media company looking to diversify its content offerings.
- Working with professionals. Brokers coordinate with lawyers, accountants, and other advisors to ensure a smooth transaction. They might work with a lawyer to handle the sale of physical property like a spa, ensuring all local regulations are met. They might coordinate with accountants to clarify the digital asset values in an online business sale.
- Ensuring the best deal. Brokers negotiate to get you the best possible price. They could negotiate based on the prime location and potential for expansion of a coffee shop or the unique technology and high growth rate of an online SaaS business.
- Maintaining confidentiality. Brokers can market your business without disclosing its identity, protecting your relationships with employees and customers. The broker ensures discretion, whether it’s a beloved local bookstore or a popular online niche product site.
- Identifying qualified buyers. Brokers sift through prospects to find serious and qualified buyers. They can help a gym owner avoid tire-kickers and find committed buyers with the resources to take over or connect a digital marketing agency with buyers who understand the industry and have the capital to invest.
- Promoting your business. Brokers effectively market your business to potential buyers. They may highlight the foot traffic and future development plans in the area for a physical store or the scalable processes and low overhead for an online business.
- Managing the due diligence process. Brokers help prepare and present the necessary documentation to the potential buyer. Whether it’s the health inspections and property assessments for a restaurant or the server security checks and code audits for a software company, the broker handles it.
- Assisting in the transition. Brokers often help ensure a smooth transition to the new owners. For an offline business like a manufacturing plant, they could help plan the handover of supplier relationships. For an online content platform, they might help transfer digital assets and user accounts.
- Offering post-sale support. Brokers can often guide the sale. For an offline hardware store, they might advise on informing staff and customers about the change in ownership. For an online data analysis service, they might guide the handover of client relationships and ongoing contracts.
Understanding brokerage fees
Brokers earn their keep through a commission, a percentage of the sale. This depends on the business size, company type, and the deal’s complexity.
Our team has been involved in selling numerous businesses. Here’s a general guideline for broker commission rates:
- For businesses selling for under $1 million, the brokerage fee might range from 10-15%. The percentage tends to be higher because smaller deals often require significant work, not significantly less than larger deals.
- Businesses selling for between $1 million and $2 million might see broker fees ranging from 10-12%. As the deal size increases, the percentage tends to decrease.
- For businesses in the $2 million to $5 million selling price range, broker fees typically range from 8-10%.
- If a business sells for over $5 million, the broker fees are likely negotiable and could be anywhere from 4-6% or even lower.
These are general estimates, and actual rates can vary. Always confirm the fee structure and percentage before hiring a business broker. Different brokers might also have minimum fees, so it’s essential to understand the entire cost structure before moving forward.
Remember, not all brokers offer the same level of service or expertise. It’s essential to conduct thorough research, ask for client testimonials, and understand their process in depth before choosing a broker to partner with.
The best brokers are transparent about their process, provide references, and can articulate the value they’ll add to the sale process, regardless of whether your business operates in an offline or online space. The ideal broker will have experience and success in selling businesses similar to yours.
6. Scout qualified buyers
Selling your business is a pretty big deal! You should only be courting serious offers from those interested in buying.
Now, your broker can help you find these unicorn buyers, or you can venture out to find them yourself.
But how do you know they’re serious? Here are a few essential questions you need to consider:
- Do they have the cash? Have they been pre-approved for financing?
- Have they been around the block? In other words, do they know your industry like the back of their hand?
- What’s their grand plan? Why do they want your business, and what do they intend to do with it?
- Time is of the essence. Do they want to seal the deal quickly or take their sweet time reviewing all the details?
Understanding their intentions is critical to knowing if they can take your business’s reins.
Once you’ve identified potential buyers, consider these steps to keep the conversation flowing:
- Maintain regular contact with possible buyers
- Keep a few prospects on the back burner, just in case
- Seek advice from your lawyer or accountant to navigate the nitty-gritty details
- Be open to haggling over price, but know your bottom line
- Get it in writing! And don’t forget to get your buyer to sign a nondisclosure agreement
7. Prepare the documents to close the deal
Deals often crumble at the last hurdle because of hitches in final negotiations or lack of documentation. So, let’s ensure you cross the t’s and dot the i’s!
Your broker can introduce you to a legal eagle specializing in business sales, or you can find one yourself. These legal gurus ensure every minute detail is reviewed to protect all parties involved in the deal.
Here are some of the documents you’ll need to prepare for your business sale:
- Bill of sale. This formal document seals the deal and transfers ownership of the business to the new owner. For online and offline businesses, it should clearly state what is being sold, including physical assets, intellectual property, and customer databases.
- Representations and warranties. This document outlines all the promises the seller is making about the business. An offline business might warrant that all its equipment is in working order, while an online business might guarantee the accuracy of its user metrics.
- Purchase agreements. The mother of all contracts. It covers all the specifics of the sale. For offline businesses, this might include arrangements for transferring the lease of a storefront. For an online business, it could include transferring domain names or social media accounts.
- Intellectual property transfers. This document identifies all the intellectual property (IP) included in the sale, such as patents, trademarks, and copyrights. An offline business with a patented manufacturing process or a recognizable logo must include this in the sale, just as an online business would include proprietary software or branded content.
- Indemnification agreement. It protects the buyer from future liabilities. For example, if a product sold by your offline business causes an issue after the sale, the indemnification agreement covers the new owner. Similarly, an online business might indemnify against claims related to past data breaches.
- Noncompete clauses and agreements. These prevent you, the seller, from starting a similar business immediately after selling. An offline business might be prohibited from opening a similar store in the same city, while an online business owner might be prohibited from starting a similar online service.
- Financial statements. These give a clear picture of your business’s financial health. Offline businesses should include balance sheets, income statements, and cash flow statements. For online businesses, financial statements should also include revenue from digital ads, subscription services, and digital products.
- Customer information. This could be an invaluable part of the sale. For offline businesses, it might be a list of recurring clients. For online businesses, this could be user data or email lists. Be sure to handle this data by all privacy laws and regulations.
- Business licenses and permits. The buyer will need these to operate the business legally. These might include retail sales permits or food handling licenses for offline companies. For online businesses, it could include necessary software licenses.
- Contracts and leases. These detail any obligations the buyer will take over. An offline business might transfer a building lease or supplier contracts. An online business might transfer hosting agreements or contracts with freelance content creators.
Discuss any other documents you’ll need to close the deal with your lawyer or broker. Once all the paperwork is in order, it’s time to seal the deal with a hearty handshake.
8. Be wise about spending your profits
Give yourself a few months before you start to spend. This way, you’ll have some breathing space to consider your financial goals and be aware of any taxes related to your sale.
For instance, if you’ve sold your business to kickstart your retirement, it’s wise to avoid splurging all your money immediately. Remember, this money needs to support your sunset years. Get solid advice from a financial advisor on managing your money and making it work.
We’ve covered a lot of ground in this guide on selling your small business. Whether you’re running a brick-and-mortar store or an online startup, we’ve given you tips, strategies, and insights to navigate this big decision.
Now, let’s highlight the most impactful takeaways to remember. These nuggets of advice are your cheat sheet, your quick reference guide as you stride towards a successful business sale.
- Start preparing early. Whether you run a brick-and-mortar store or an e-commerce platform, selling your business should start one to two years before the sale. Use this time to tidy financial records, bolster the customer base, and enhance operational efficiency.
- Assess your business worth. Engage professionals to evaluate your business. This process will involve scrutiny of financial records, service quality, market potential, and future prospects. Whether you own a local cafe or a digital marketing agency, a business valuation is crucial to setting the right selling price.
- Highlight key attributes. A prime location or a well-known brand can be key selling points for a physical store. In contrast, an online business might emphasize strong SEO, high web traffic, or an extensive email subscriber list.
- Consider hiring a broker. Selling a business, be it an apparel retail store or an online drop-shipping business, can be complicated. A broker can guide you through the process, find qualified buyers, and handle the necessary paperwork.
- Scout for qualified buyers. The potential buyer should have sufficient funding and relevant industry experience, whether offline or online. Understanding their intentions for your business post-purchase can also be important.
- Prepare necessary documents. Offline businesses might need to prepare property leases or vendor contracts, while online companies should ready documents related to intellectual property rights, digital assets, and customer data privacy.
- Understand broker commission. The commission varies based on the business’s size and deal complexity. For example, an offline manufacturing plant might require more intricate negotiations than an online blog, potentially leading to different broker commissions.
- Anticipate tax implications. Whether you’re selling a restaurant chain or an e-commerce site, the proceeds from the sale will likely have tax implications. For example, a US citizen operating a foreign business must adhere to specific tax reporting requirements, including reporting global income on your US tax return. When it comes to selling the business, you’ll need to consider both US capital gains tax and potential local taxation on the sale. Navigating these complexities demands careful planning and expert guidance. Consult a financial advisor to understand and plan for this.
- Secure confidentiality. During negotiations, sensitive information might be shared. Offline and online businesses must ensure potential buyers sign nondisclosure agreements to protect business secrets.
- Plan post-sale proceeds. Whether from selling a bookshop or a digital consulting firm, it’s crucial to have a plan for your money post-sale. Consider potential investment opportunities or retirement plans, ensuring your hard-earned profits are well managed.
How to sell a business FAQs
How can I sell my business without engaging a broker?
While saving on broker commissions can be tempting, selling a business independently is challenging. If you decide to go this route, consider seeking advice from experienced, retired executives or owners. Utilize resources from the Small Business Administration or the National Federation of Independent Business (NFIB), and consider selling to an acquainted buyer.
How do I sell my business to a competitor?
Selling a business to a competitor involves the same basic steps as selling to a non-competitor. However, protecting sensitive information about your business during negotiations is crucial to prevent potential misuse.
What’s the best way to sell my business online?
Selling a business online involves leveraging digital platforms for negotiations, discussions, and meetings. Tools like Zoom or Skype can facilitate business meetings with potential buyers. Ensure that all information exchanged is done securely to protect your business data.
How can I accelerate the sale of my business?
While rushing a business sale is not advisable, employing a business broker can expedite the process if circumstances necessitate a quick sale. Ensure that all critical steps are taken and that due diligence is performed to prevent future complications.
How do I value my business for sale?
Professional business evaluators can provide an unbiased estimate of your business’s value. Alternatively, you can use several methods, such as determining market capitalization, considering earnings multipliers or book value, and other relevant metrics.
How can I sell a business idea?
Presenting a business idea to a company requires thorough research and preparation. Protect your concept through patents or secure nondisclosure agreements with potential companies interested in your idea.
What costs are involved in selling a business?
Costs of selling a business can include broker commissions, typically 10% to 12% for businesses valued under $1 million, legal fees, marketing expenses, and costs associated with enhancing your business’s appeal. Transfer of leases may also incur additional fees.
How do I sell a franchise business?
Selling a franchise involves close coordination with the franchiser, who needs to approve the new buyer. The new owner must sign a franchise agreement with the franchiser. Review the FTC’s compliance guide for comprehensive information on fees and regulations for owning or selling a franchise.
How can I sell my share of a business?
Selling your share of a business often involves transferring ownership to existing partners. Establishing an agreement with your partners before the sale can smooth the transition and ensure mutual benefit.
What is the process of transferring intellectual property during a sale?
Transfer of Intellectual Property (IP) is integral to a business sale. This process involves clearly defining and documenting all IPs, including patents, trademarks, copyrights, etc., to be transferred as part of the sale. This must be done in compliance with all applicable laws and regulations.
Selling your business can be challenging – physically, mentally, and emotionally especially if you’ve poured your heart and soul into building it up. But when you finally close the deal, when the fruits of your labor are firmly in your bank account, trust us, it’s all worth it.
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