Ready to sell your business? Or maybe you’re ready to buy? With so many buyers entering the market, now is the perfect time to put up your business for sale or find a business to buy.
There are a ton of factors that go into either end of the transaction. Preparing ahead of time and being super clear on your terms and abilities are the key to selling your small business, or buying a small business, at a great value exchange. Read on for our top tips on how to prepare to sell a business, and to find a business to buy.
How to sell your business.
If you’re interested in selling your small business, now is the perfect time to begin preparing. For any business owner, time is absolutely key when it comes to securing a good asking price from your buyer. Having a well-developed plan makes you more likely to have a successful selling experience.
1. Determine if the time is right.
There are a lot of different reasons to sell your business, but before you begin, it’s essential to identify your reasons for selling and be sure that the time is right. Selling a business can take anywhere from 3 months to a year and rushing through the proceedings is generally something that should be avoided. Some common reasons that lead owners to sell a business are: feeling tired after running the business for several years, wanting to bring in fresh management so that the business can scale, impending political effects on business, and more. Ultimately, the smartest owners sell when they know (or can reasonably predict) that they’ll be better off emotionally, financially, mentally, and physically as a result of selling a business.
One of the most important components of determining whether the time is right to sell your business is looking at the numbers and valuing your business. Not only can a lack of clear documentation lead to a failed deal (as we’ll cover below), but a lack of information can result in serious oversight when it comes to assessing the financial impacts of selling your business.
Taking a hard look at the numbers will help you decide what types of purchasing options you’re willing to accept from a buyer, predict what cash flow will look like after the sale, and also make your business value much clearer to business buyers. While there are many external factors that affect whether or not it’s a good time to sell, having clear information and a plan when you are looking to sell a business makes a significant impact on creating the right environment for your business to sell.
2. Find buyers.
After valuing your business and determining whether or not you’ll work with a business broker, you’ll begin to find potential buyers. Advice is variable on how to go about advertising businesses for sale, but the primary objective is to target advertisements to the most likely buyers for your business. Depending on the type of business for sale, you may want to advertise generally to as many people as possible, or you may want to keep it on the down-low. If you work with a broker to sell a business, advertising strategy will largely be under their advertisement or they will take it over for you completely. Advertising methods can include: listing your business for sale in the newspaper, listing on a business buying website, using word of mouth marketing, etc.
Once you’ve secured a few prospective business buyers, you can begin to qualify your buyers. This will mean making sure that they pre-qualify to buy, having an attorney or M&A advisor ask questions to assess a buyer’s viability, etc. This can all be handled through your business broker and other members of your support team. If you choose to sell without a broker, assessing potential buyers can be present more of a challenge. In these cases, it is more ideal to sell to someone you know, or use resources from trustworthy sources, such as the Small Business Administration.
3. Document, document, document.
As we mentioned above, proper documentation can make or break the sale of your business. Buyers will not purchase a business unless they can reasonably count on it being a long-term profitable choice. In the beginning stages of thinking about selling your business, you will want to gather as much documentation and evidence as possible of the value of the business you have for sale. There are many documents that will be necessary for your business sale.
The first, and one of the most important, will be a valuation of your business from an appraiser. Next, you’ll need all of your business’s financial statements and tax records (as well as any property and day-to-day business operations documentation). These can all be reviewed with an accountant and turned into an information packet for potential buyers. Once you’re working with buyers, you’ll need to create confidentiality/nondisclosure agreements about your agreements. At the time the sale closes, you’ll need a bill of sale and many other finalizing documents that you and your attorney can draw up together.
How to find businesses for sale.
For business buyers, finding the right business to buy can be daunting. There are so many questions that can arise when buying a business: How can I be sure this is a good deal? How will I know if this is the right business to buy? How do I even start looking for businesses for sale? Here are some of our top tips for buyers looking to purchase a business.
1. Know what you want.
When buying a small business it’s important to be intentional about exactly what you want. There are a lot of businesses for sale, and knowing what you’re looking for will help you weed out opportunities that aren’t the right fit, as well as more clearly identify when the right opportunity comes along. If you don’t already have a clear idea of what type of business you want to buy, reflect on your interests and past experience.
It makes the best sense to buy a business that is in line with your past experience or that you’re very familiar with; for example, if you worked as a hairstylist for a number of years, purchasing a hair salon might make the most sense.
Buying a business doesn’t come down solely to numbers and profit—having a working knowledge of an industry, potential competitors and best practices for the type of business you’re buying (whether you gain this knowledge through personal experience or research prior to purchasing) will help you to hit the ground running and have better success in the long run.
2. Find sellers.
Finding sellers can be done in a variety of ways. You can work with a business broker to find a business for sale, or you can do the searching on your own. There are websites that allow owners to post their businesses for sale. There are also columns in many newspapers that list businesses for sale. Other buyers find businesses for sale through word of mouth, or through their professional network. (Make sure your LinkedIn contacts are up to date!)
As you search for businesses to buy, try to gain a sense of how motivated the business owners are to sell. Working with owners that are the most eager or ready to sell will help you strike a deal that is worthwhile to you. And most of all, be patient. It is never a good idea to rush into buying a business, no matter how urgent the seller may be. Take your time and trust that the right opportunity will come along.
3. Investigate the details.
When buying a business, gather as much information you possibly can. This is called doing due diligence. Make sure to have an accountant and attorney on your team to help assess the business value and risks and to represent you legitimately. Reviewing all of the necessary information can seem daunting and take a significant amount of time, but it will be well worth it.
As you move forward with looking into a business to buy, you’ll often be asked to sign a non-disclosure agreement when you’re looking into buying a particular business. This will allow you to look at the finer details and financial records so you can make an informed decision about the business you are about to purchase.
Once you’re positive you like what you see, you and your attorney can pitch an offer to the business owner. If your offer is accepted, it’s time to finance and close the deal.
4. Set up your business right.
One of the most important steps of buying a business is having a path forward that is clearly communicated and doesn’t rock the boat too much at first. A smooth transition is essential. Don’t be afraid to make some changes, but recognize that change takes time when acquiring a machine that is already running. A good place to start would be updating the business’s communication.
Buying or selling a small business is a big decision and not one that should be made without careful consideration. If you do decide to take that journey, we hope that these tips will help you along your path!