When you first started your small business, you may have never dreamed of selling it. But as life changes and opportunities come your way, you could need to sell to make room for the next big thing (or just to prioritize other parts of your life).
In order to sell when you are ready, however, you need to follow an effective exit strategy — or risk your business remaining on the market indefinitely. In fact, without the right approach, up to 70 percent of businesses put on the market fail to sell and provide their owners with the desired return.
Fortunately, it does not need to be that way. You can easily build an effective exit strategy and successfully sell your business by following these steps.
Clearly Define Your Business and Personal Goals
To effectively market your business and sell it to the highest bidder, you must clearly define your business and personal goals ahead of time. That way, you have a clear view of your upcoming journey and can share your intentions with otherwise unsure buyers.
In defining these goals, make sure to think about:
Also, reflect on your reason for the sale. Whether it is retirement or boredom, sellers will want to know why you are moving on from the business you worked so hard to build and grow. By giving them a glimpse into your reasons, you can help them prepare for the road ahead and ensure the business remains a success for years to come.
Gather and Organize All Your Financial Documents
When looking for a lucrative business to purchase, buyers usually want to see at least five years of financial documents.
The financials they will want to review most include:
They will also likely want to explore your detailed customer data showing their shopping habits and loyalty to the brand. By providing all the financials on their list, you can keep prospective buyers interested in your company as they compare all their options.
To make the best impression, present the financials in a clean, organized manner. Place them in a secure binder or provide a digital portfolio that allows their quick and thorough review at a glance. If you work with an accounting professional, they can help you with this process.
Accurately Complete the Business Valuation Process
Before you can set the ideal asking price, you need to determine just what your business is worth. Otherwise, you may set the price too low (causing you to lose money on the sale) or much too high (leaving your business on the market for too long).
To accurately complete the valuation process, you will need help from a skilled business appraiser. These professionals will look at all the different aspects of your business to determine its overall worth. Then, they will detail their findings in a report that you can use to back up your asking price and help buyers feel comfortable with their purchase.
Allow Enough Time to Sell Your Business
Although you may want to immediately get started with the next entrepreneur opportunities on your radar, selling your business could take up to four years to complete. Many do not have a chance of selling in less than two years, leaving your future plans waiting in the wings until you complete all the steps.
You cannot rush this process if you hope to get a solid return from the sale, so make sure you have enough patience to see it through. By avoiding trying to rush through the sale, you will give buyers confidence and alleviate their fears that you are abandoning a sinking ship.
Take the Time to Find and Secure an Ideal Buyer
As prospective buyers express interest in your company, you will need to vet each one to see if you are betting on the right individuals. Avoid narrowing your focus at first, however. Instead, keep the conversation going with at least two to three buyers at a time, answering their questions and remaining in close contact.
Do not be afraid to favor buyers who have pre-qualified for financing or have the money on hand for the purchase. However, you should always make sure to work with a lawyer to hash out a legally binding agreement that benefits both you and the buyer. You can also have a lawyer write up a nondisclosure agreement for your buyers, ensuring they do not share protected information with your competitors.
Consider Hiring a Broker to Help with the Sale
For assistance with creating an effective exit strategy, you can bring in a broker, but be prepared to pay their commission. Many brokers charge up to 15 percent of the sales price to provide their assistance from beginning to end of the process. However, since they can help in negotiating a higher sales price, their commission rate may be worth it.
If you decide to sell your business without a broker, take your time going through the steps above to move through the process with confidence. Your efforts will pay off in a hefty return and free up your time for your next startup or any other opportunities that come your way.
About Spencer Wilson, EA
Spencer Wilson Financial Management Services has been a family business for the last 40 years. He specializes in personal and business tax preparation and tax planning, as well as accounting and payroll services. Based in Long Beach, they serve the greater Los Angeles and Orange County areas.
