Things to Consider in Selling a Business

According to an entrepreneur named John West, selling an existing business is just as tedious as putting up a business. Here are some of the things that business owners must take into consideration when selling a business:

  • REASON FOR SELLING

Most common reasons why owners want to turn over their businesses are retirement, health concerns, or conflict with the partner. Sellers must take into account that this can affect the attractiveness of the business to the buyers. Apart from having a good and valid reason for the sale, the current owner must also the timing of the sale itself, the preparedness for the sale, and the capacity of the business to still earn profit once turned over. Other factors that will make the business for sale more appealing are – upward profit trend/ consistent income generation and strong client relationships.

 

  • SALE LEAD TIME

If an owner decides to sell a business, he/she must prepare one to two years prior the sale proper. Financials, business structure, and the customer base must be strongly established in order to attract more potential buyers and to have a seamless turn-over to the new owner.

 

  • VALUE OF THE BUSINESS

Asking price must not be too high or too low. It will be better if the seller will hire an appraiser. The appraiser will be providing an official document reflecting the rationale behind the set amount. With this, the declared business value will be deemed more acceptable. But the need to have several valuations might arise based on the buyer/s and the deal presented and nature of the business.

 

  • DIY VS. SEEKING A BROKER’S HELP

There are pros if an owner decides to sell a business on his/her own. He/she will definitely be able to save money since there will be no transactions with a third party for the sale. This is advisable if the current owner plans to sell the business to a relative or a trusted staff member. But if a broker will be tapped to help in the sale, the owner will be spared more time. Through the broker, the business will most likely be valued at a higher price (since the broker will get commission from this). In order to have a seamless selling transaction through a broker, the current owner must set a meeting to discuss his/her expectations and ideas in mind (i.e. advertisements) that the broker can do to help expedite the sale. The two parties must be reaching each other from time to time for updates and feedback.

 

  • NECESSARY DOCUMENTS

If an owner plans to sell a business, he/she must gather the following documents:

  • Financial statements and documents reflecting tax returns dated three – four years back (must be reviewed by an accountant)

It is important for a business must have comprehensive financial books and records.

 

  • List of equipment/ furniture that will be included in the sale (owner must make sure to fix or replace any broken equipment/ item)
  • Supplier and customer database
  • Lease papers

 

Potential buyers must be given copies of these documents for their review. It will also be better if the owner will produce a guide for the business operations in order to give the buyers a glimpse of the day-to-day activities for the business.

It takes six months to two years on the average before the close of a business sale, according to SCORE, a non-profit group catering entrepreneurs and a partner of US Small Business Administration. They advise sellers to not put any limitation when it comes to advertising the sale. Seller can tap websites to sell a business. The site showcases a wide variety of businesses that interested buyers can choose from. Few Canada-based businesses are featured on the website. The current owner must consider 2-3 potential new owners and must consistently communicate with them. These interested buyers must be financially qualified before the seller discloses any important information about the business. Seller must be open for negotiation but must stick with the price deemed reasonable. All agreements must be documented and the buyer/s must sign a confidentiality agreement in order to avoid disclosure of vital details of the business.

A big number of business owners actually consider their key employees who show interest in the purchase of the business. They are confident that these people will have a full grasp of the operations and have the passion and commitment to make the business grow even further.

New owner might also ask the seller to stay for a while for the transition. The old owner must be able to negotiate his/her responsibilities and set a time period for this commitment.

But it doesn’t just end there. Sellers must also have a concrete plan on what to do next after the sale, especially with the earning. Some might already have set their vision for themselves but others might have to take more time to figure out what to do next. Consult a financial advisor to get the best tip on how to maximize the profit earned. Utilize the chance to analyze his/her assets and skillset and strengthen the network with more contacts and potential market to make it easier to start anew.