Many entrepreneurs reach a point where they'd like to move on from their business, perhaps to start a new one or simply pursue a different career path. If you've found yourself in this position, selling your business may be the right next step. For those who are looking to market your business for sale, you'll want to take the proper steps to ensure you receive the proper compensation for all the hard work you've invested in your company. Here's a step-by-step process of preparing your business for sale.
[Read more: 6 Financial Terms to Know Before Pitching Investors]
Offer incentives to your employees
When selling your business, it's important to be open with your employees so that they have clarity throughout every step of the process. If any of your employees are shareholders of your business, offer them favorable incentives to sell back their share of the company. Shareholders have the potential to hold the company hostage during negotiations, so it's important to give your employees clarity and incentives, such as a sales bonus or stock options, to avoid these conflicts.
Get a business valuation
Before you can start fielding offers for your business, you'll have to know what your business is worth from an outside source. Getting a professional valuation gives you an idea of what your business is worth, as well as its market position, financial situation, strengths and weaknesses.
You can get a business valuation from a few different objective sources. These can include local accounting firms, regional business brokers and investment banking firms. To get the fairest result, make sure that whoever is performing the valuation has access to the most current national data regarding transactions in your industry.
[Read more: What Is a Business Valuation and How Do You Calculate It?]
Organize your books and paperwork
Perspective buyers will generally ask for at least three years’ worth of your financial information to review before they make an offer. Take an internal perspective of your business, books and paperwork to make sure that everything is organized, accurate and easy to review. The more formal and thorough that your financial statements are, the easier it is for buyers to review them and you'll be better off.
In some cases, having three years’ worth of tax returns may be sufficient for review. However, whenever a business is being prepped for purchase, it is always better to have more financial information than less.
Before you can start fielding offers for your business, you'll have to know what your business is worth from an outside source.
Understand your business's profitability
Many businesses incur nonoperational expenses, such as paying for a personal automobile lease or renting out office space. When organizing your financial documentation, make sure you have supporting information for all these expenses. This also includes any infrequent expenses that you may have incurred over the last three years. These expenses should be excluded from a buyer's analysis of your recurring cash flow. Having all these expenses understood makes it easier for both you and any potential buyer to understand the profitability of your business.
Market your business and find buyers
Once you have everything internally straightened out, you can market your business to attract buyers. There are a few different types of avenues you can use to find them. This can include going through a professional, such as a broker or real estate agent, or marketing yourself through traditional or digital media, your existing network or word of mouth. The method you choose will depend on what industry you're in, the location of your business and the size of your organization. To help gauge the best way to market, look at how businesses of similar size and structure were sold off and how they found buyers.
Make a sales agreement and transfer ownership
After you’ve found a buyer and negotiated a sales price, work with a lawyer to create a sales agreement and transfer ownership to the buyer. This process could go back and forth for some time, as there are many specific documents that need to be created and carefully executed. Work with your lawyer and your buyer's legal representative to ensure clear communication between both parties during this process.
[Read more: ‘Invest in Yourself’: How to Grow Your Business With Self-Investment, Education and Authenticity]
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