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10 Things to Do Before Selling Your Business

Stella Morrison
Stella Morrison

It's important to follow certain steps to ensure the successful sale of your business.

You have a lot of decisions to make and steps to follow when considering selling your business. How do you find a buyer who sees the value of what you have worked so hard to build? Whether your business has achieved great success, you're moving on to another venture, you have decided to retire, or other life circumstances are pressing you forward, selling your business takes significant preparation, homework, and patience.

Here are the steps you should follow while starting this exciting process, as well as some frequently asked questions business owners have about the big sale.

1. Determine your business value.

The first and most important step is to find out precisely how much money your business is worth. This can be complicated, as it involves revenue, expenses, debts and other responsibilities your business may have acquired over the years. There is also the motivation of the seller: If they are a competitor looking to acquire you to increase their market share, for example, they may be willing to pay more.

There are several methods for determining your business's value, including the following:

  • Asset method, which calculates the difference between assets and liabilities
  • Market method, which involves evaluating competitors and other sales to determine a ballpark figure
  • Income method, a more in-depth approach that assesses multiple factors, including income statements, forecasting, growth factors and cost structure

The right method for you depends on your goals and business structure. This is what makes legal and financial professionals so important.

TipPro tip: Consider working with multiple assessors when trying to justify your asking price. Multiple valuations can reinforce what your business is worth.

Whatever your catalyst for selling, it's crucial to hire financial, legal, tax and business-advising professionals to ensure the process goes as smoothly as possible. Many details for which you may be unprepared will come up, so having the proper resources is essential. These experts will also help you make the best decisions to get the most value out of your business.

Importantly, third-party professionals take a neutral approach. These experts do not have the same emotional attachment to your business that you may have, so their approach will support rational decision-making.

3. Hire a professional business broker to list your company.

A business broker will help give your business market visibility where you want it and increase your chances of finding the best fit. Their well-established networks can help you access buyers you would not have been able to find on your own. A broker can also help you set a realistic asking price, market your business to potential buyers, and contact potential buyers on your behalf.

4. Set a realistic asking price.

If your business is doing well, it may be tempting to set a very high asking price. In reality, buyers will look at many factors when considering a purchase. Consider how all these aspects will factor in and how you would view the business from all angles if you were the buyer. Consider profits, client relationships, reputation, market share and the personal investment of time that will be required for the new owner to make the transition successfully. There are also practical considerations, such as if there is debt to pay off or tangible assets that hold value or can be sold. Set your asking price accordingly.

5. Get your paperwork in order.

The legwork for the sale of a business starts long before you put up a "for sale" sign. All potential buyers will want to see evidence of a successful track record, including:

  • Tax records from at least the three previous years
  • Financials, both actual and projected
  • Existing agreements that demonstrate a strong client base
  • A cash flow report

6. Separate your personal expenses from the business.

If you still have commingled personal and business expenses, the time to separate them was yesterday. While it is not uncommon for business owners to run personal expenses through their business, such a habit can have significant consequences down the road, and it presents a distorted picture of your true finances to a potential buyer. Switch to paying yourself in regular intervals, similar to a salary, in the way that works best for your business. If you're unsure how to set this up, speak with the professionals you hired to help with your sale.

7. Get offers in writing.

Talk is cheap. If and when offers start coming in, it is imperative to have things in writing to make accurate and proper comparisons. Price is not the only factor to consider, so it will be useful to record the details of each offer to ultimately determine which is the best for you.

8. Improve your curb appeal.

This sounds like a no-brainer, but many people overlook the outward appearance of their business when the time comes to sell.

This matters to both brick-and-mortar locations and online businesses. If you're selling a brick-and-mortar location, make sure that it's clean and tidy, equipment is in working order, and any necessary repairs and outdoor improvements to landscaping or signage have been made. If you're trying to sell a digital business, make sure that your online reviews and reputation are stellar. You may want to consider hiring a marketing firm to boost your reputation online and present yourself better to buyers.  

9. Tie up loose ends.

It's essential to honor all your payments, late fees, defaults and promises before handing off the business. For instance, if you promised a team member shares in the company, even if you are selling, it's time to fulfill that promise. The same goes for incoming payments: You will have to decide how to handle any outstanding invoices. Loose ends may cause problems when it is time to complete the deal, so make sure you tie them up, even the small ones.

10. Keep quiet until the sale is finalized.

If you're in a business where a sale may send your customers or clients into panic mode, it's best to keep an impending sale quiet until you have identified a buyer and finalized the details of the sale. That includes determining how you will transition your customers to the new owner. Depending on your business, you may want to make a formal announcement with a press release after informing your clients. (Always inform your current clients first.)

Bottom LineBottom line: Selling your business is a lengthy process. Hire the right professionals, and document every step of the way.

FAQs about selling your business

Here are some of the most common questions about selling a business.

What is the best way to sell a business?

While there is no wrong way to sell a business, there are many tools at your disposal that can make this process much easier. Chief among them is the help of a broker and other professionals who have experience locating buyers and a deep network they can use to your advantage. At the end of the day, you and the buyer will have to reach a deal with which you are both comfortable, so the "best" way to sell a business is one that leaves all parties involved as satisfied as possible.

When is the best time to sell a business?

The answer is shaped by personal circumstances and market forces, but no matter what is driving you to sell, you should try to sell when you are on top. A profitable and successful business with a good reputation is much more appealing to a buyer. If you are having an especially good year, this may be the time to think about selling.

How long does it take to sell a business?

Expect the entire selling process, from preparing for the sale to signing on the dotted line, to take several months. The average time frame is six to 10 months.

Image Credit: Dutko / Getty Images
Stella Morrison
Stella Morrison Contributing Writer
Stella Morrison is an award-winning writer who focuses on marketing for small businesses, including useful tools and best practices that help business owners introduce their products and services to new audiences. She is also a digital marketing professional who has worked with leading brands in the tech industry.