Tips on Selling Your Business

6/15/2005

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Perhaps it is your health, maybe your advancing age, or it could be a problematic business partner or economic downturn that has convinced you that it is time to sell your business. Whatever the reason, you will want to carefully put plans in place to ensure that you reap the maximum reward for your years of hard work. Following are tips from the Better Business Bureau and items to be aware of when placing your business on the market.

  • Make certain you are certain. Once you decide to sell, you will need to devote a great deal of time and energy to the process in order to minimize any business and employee disruptions, so be sure of your decision. Also, if you are wishy-washy or fail to show commitment during negotiations with potential buyers, you lessen your chances for a successful sale.

  • Preparation is crucial. Hold off on any “For Sale” advertisements until you have undertaken the proper preparations. You will want to present your business in the best light possible to prospective buyers. So take the time to prepare updated financial statements, including profit-and-loss statements, and gather materials to corroborate the success or nature of your business.

  • Pricing is important. Do not overprice your business. A high asking price may scare away potential buyers and could indicate a lack of commitment on your part. A ridiculously high asking price will probably force your business to remain on the market for an extended period of time, which will in turn cause prospects to question what is wrong with the business.

    There are many formulas for determining the value of a business. Factors to consider include the market for a business like yours, the value of the assets in your business, the cash flow, gross revenues and annual growth. The ultimate value of your business will probably be driven by its bottom line.

    Once you have set a reasonable asking price, work out what your bottom-line price will be. While you will never, of course, mention that price to prospective buyers, having a clear minimum asking price in mind will help you to negotiate effectively.

  • Hire good help. This is not a do-it-yourself endeavor. It can be very helpful to rely on the knowledge of those who have been through the process before. Assemble a team of experts to assist you. Your accountant or tax adviser can assemble the financial reports, cash flow statements, tax filings and other information that prospective buyers will be seeking; a good business broker can help determine a reasonable price for your business, set the terms of the sale, identity and qualify appropriate buyers and put together a sales prospectus; and, a good attorney will ensure that all aspects of the sale are handled properly.

  • You may have to finance the sale. A significant number of small business owners finance the sale of their businesses, so you might well end up lending a percentage of the purchase price to the new owner. Terms for such deals vary. Before reaching a financing agreement, you will want to obtain information on the buyer’s financial records and background, of course.

  • Keep the business running well. You will wind up keeping the business longer than you anticipated if your deal never goes to closing, which happens more frequently than you suspect. So make certain the business is not being neglected and that sales targets are being met. Maintaining good financial results will help attract other buyers if your first and any subsequent deals fall through.

  • Carefully time your announcement! If you broadcast your intention to sell the business, you could lose key employees, upset customer and supplier relationships and embolden competitors, which could negatively impact business operations and productivity. It is best to keep things quiet as you put the necessary plans and processes in place to ensure a successful sale.
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