You started a business that you’ve worked so hard over the years to nurture and grow. The idea of selling it might have never crossed your mind initially. Years later, perhaps your business has grown, is bringing in revenue, and you’re ready for the next project. You might even simply want a break from the daily conundrums of being a business owner.
Truth is, selling your business isn’t quite like listing your used car on Craigslist once it has reached 200,000 miles. Of course, there are some businesses where you might be able to sell equipment on a platform like Machinery Network (https://www.machinerynetwork.com/). In other cases, you might be interested in selling an entire brand. After all, this is something you’ve painstakingly built yourself. The stakes are too high and the process can be emotionally taxing. So, how do you make sure you receive the true worth of your business? Here are five tips to help you do exactly that.
Determine Your Business Value
Before selling your business there are some important questions you should ask yourself:
- What’s the appropriate value of your business?
- Can it be sold?
- What do buyers look at when they consider purchasing/investing in a business?
You can’t start looking for a buyer before determining the value of your business. Doing so would mean going into the sales process blindsided. The numbers in your mind may not be the actual value of your business. You can figure out the value of your business on your own. Here are three approaches you can use:
- Market approach. Analyze similar businesses that have already sold to see their estimated worth and/or selling price. You can value your company at a similar amount.
- Asset-based approach. Find the difference between your business’s assets and liabilities to get the book value of your company.
- Income approach. Assess your business’s financial history- cash flow and profits- and project the future debts and profits of the company.
However, it’s important that you hire a valuation expert to help determine the value of your business. A third-party business valuation report will not only give you a realistic estimate of your company’s worth but also bring credibility to your asking price if anyone questions the amount.
Find the Right Broker to Represent Your Business
If you’re looking to sell your business faster and get the best possible selling price, it’s best to use a business broker. Chances are they will determine their own valuation. That shouldn’t be a problem. Compare their estimate you received from an appraiser. The figures should be relatively close. If there’s a huge difference, consider getting a third opinion so you know which one is more accurate. Business brokers are extremely valuable and can help you:
- Market the sale
- Find the best buyers
- Negotiate the best price
- Get financing for the deal
Don’t be in a hurry to sign up with the first broker you speak with. Take time to interview several brokers and hire the one with the most realistic approach to selling your business.
Work with Financial and Legal Experts
You may have been successful at running the day-to-day operations of your business. However, it’s unlikely you know all the legal, taxation, and financial issues involved in selling a business.
At a minimum, you need to consult with an accountant and a legal professional.
An accountant is essential in preparing your business’s past and projected financial statements. A lawyer, on the other hand, ensures the business sale is valid, legitimate, and legal. Some of the standard documents that may need the help of a lawyer include:
- Non-disclosure/confidentiality agreements
- Offer to purchase agreement
- A business inventory list with detailed values
- Engagement agreement
- Letter of intent (LOI) or term sheet
- Shareholder’s agreement
- Sales contract
- Security agreement
Enlisting the help of qualified professionals will help you get the highest value possible for your business and ensure everything runs smoothly.
Get Your Financials in Order
Nearly everyone you work with—including brokers, lawyers, valuation firms, and prospective buyers—will want to have a look at your financial records. And they’ll likely walk away at the sight of disorganized or inaccurate financial statements. Prospective buyers are interested primarily in your business’s cash flow and will take time to scrutinize your assets and statements very closely.
If you’ve always maintained highly organized bookkeeping records, then there’s nothing to worry about. You’re automatically positioned for a more successful business sale. If your accounting records are in a mess, this might be the time to get to work.
Get Your Offers in Writing
Keep in mind, not every offer you receive will be legitimate. As such, you shouldn’t be in a hurry to disclose sensitive information about your business to just anyone. And don’t get too excited over the first offer or prospective buyer that comes knocking. You must record the details of each offer on paper so you can make accurate comparisons. Selling a business can take between six to eight months on average. Don’t rush to accept an offer that doesn’t give you the maximum value. Remember, price isn’t the only factor to consider when selling a business.
