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How to Sell Your Small Business

You’ve worked incredibly hard to build up your business and, when the time comes to move on, you want to get the absolute best price for it. However, the market for a small business is extremely illiquid, that is, it is very difficult to unite potential buyers with the business. You must be proactive and reach out to the potential buyers and have the information they will want in order to make their decision. Be prepared to work as hard to sell your business as you did to build it and go into the process with the same sense of adventure and enterprise.

Big Dollars For My Biz Take the Initiative

The fact that you have a valuable business for sale, something millions dream about but never get around to doing, means that you are the type of person that takes charge and gets things done. So don’t stop now, merely hanging a “For Sale” sign on your door, or even hiring a broker, and then sitting back and waiting for things to happen isn’t going to cut it when it comes to selling your precious asset, you will have to go out there and make this happen. Start by thinking of who you’re potential buyer will be. A-list blogger and online entrepreneur Yaro Starak sold his first web business to some of his best customers, who loved his business so much that they didn’t want to risk it falling into less friendly hands.

Think about your competitors, about business owners in the same industry who may wish to expand into your industry, and businesses in parallel industries that could find useful synergies with your own. For example, if you have a camping supply store then a synergy might be someone selling adventure travel and vacations; the two have a significant overlap in customers and could try to cross-sell their customers. Don’t forget to market to trade and professional organizations, if they’re appropriate to your business. I know that the AICPA (Bean Counters of America Association) has a special area on the web site for CPA practices for sale. In case you’re wondering, I’m going to build my own up to the eight figure neighborhood before I put it up for sale.

Importance of Financial Records and Other Information

When you sell a pound of alpaca wool or a barrel of North Sea Brent Crude the exchange is pretty easy; the buyer knows what she is getting and what the current price for it is. Your business, however, is not something that you can drop on your foot, but rather a process or a system that (hopefully) generates cash and profits for its owner. To show prospective buyers what the value of the business is you will need a narrative, which is a one page summary of what your business does to make money, and some supporting numbers, usually in the form of financial statements and tax returns.

If you have traditional financial statements then that’s great but you also want to put together a summary of several years statements (if indeed you’ve been in business that long) in a tabular format so that any prospective buyer can easily see what the trend for your business is. Also, in many industries, such as with a website or online store, you will have important non-financial numbers to compile and include in your summary. For example, if your web site is an important element of your business then a number of metrics, such as unique visitors, become important to the businesses potential value to a buyer. Remember that many potential buyers will already be in your business and will by looking for synergies with their own businesses that may increase the value of what you have to offer, so don’t make them have to hunt for this information, tailor your approach to your potential buyer. SCORE has an excellent check list on what you’ll have to prepare before you sell.

Brokers, Accountants, and Lawyers

Your accountant absolutely must be informed of your intent to sell, the earlier in the process the better, and be kept up-to-date at all times. The timing and structuring of the sale can have enormous tax consequences. Remember, due to taxes a $50,000 sale isn’t really worth 50 grand to you; sometimes it’s worth much, much less. Your lawyer needs to be brought in once you have an interested buyer and before you begin to discuss terms. Your lawyer’s job is to structure the sale so as to protect you as much as possible from fraud, default, and negligence from your buyer and to limit your liability during any interim period. The use of a broker will vary depending on the industry and the expected price of the sale. Whether you use a broker or not, don’t expect to be able to just hand the job off to them and then forget about it. From my experience and from what I have been told the majority of businesses get sold through good luck, good timing, or the owner’s hard work.

Online Marketplaces

In the new global age you can buy or sell almost anything online, including your small business and a number of sites have come up to help you connect to a buyer. The online option isn’t just for online businesses, according to the general manager of one of the largest online marketplaces, bizbuysell.com, restaurants were actually the single largest category of business that they sell. Other larger players are imergeadvisors.com and bizquest.com. The market is still relatively young and fragmented, so you might peruse all three to get an idea of their individual strengths and specializations. Also, it is great fun and enormously beneficial to see what the owners of similar businesses are asking and what information they are providing.

eBay also has a section for selling businesses and websites and, as of today, it had 17 thousand businesses listed, although 12 thousand of those were web sites. My suspicion is that eBay’s format would be inadequate to sell a more complex business, in which communication between the owners, the sellers, and their supporting professionals is essential, but it does make for some interesting comparisons. Plus it is really fun to look at some of the remarkable stuff that people are trying to sell.

Be Prepared to Negotiate

The old saw in business negotiations is “I’ll let you name your price if you let me name my terms.” What this means is that the structure of the sale is as important as the price of the sale. If you are only interested in cash up front then be very clear and firm on this to potential buyers. When one of my first and best clients, my Dad, passed away he had a number of valuable assets that my mother was not able to or interested in running. I was living in a foreign country at the time but managed to come back for a month and half to help settle things and helped my mother sell off some of these assets, mostly real estate related at a time when real estate was still very hot. It was fascinating and eye opening to listen to the pitches of some of the potential buyers and creativity of some of the terms that they offered.

One of the most popular propositions was that one of the assets be put into a partnership owned by my mother and the buyer and then the “buyer” (Mom’s new partner) would contribute their labor and expertise to convert the asset into a more lucrative form (i.e. subdivide or build a building for lease, what Dad had already planned to do with it) and then would share the profits with Mom. The chances are that you are going to get offers that are a combination of cash and credit and in some cases may require your continued involvement. Don’t hesitate to bump up the price if the terms aren’t to your convenience and do not hesitate to walk (run) away from any deal that might put you into business with someone of questionable moral character.