How To Sell a Business
There are a few steps to selling a business successfully. You should begin by identifying the reasons why you want to sell it. Then you need to make sure that it’s in salable condition.
This can take up to a year to be done properly. There are a few considerations like whether you will use a business broker or look after the sale yourself.
Here are a few other boxes that you need to check:
How Much Do You Sell a Business for?
Of course, the price is one of the big considerations. Here are a few things to look at to make sure that you arrive at market value.
- The Net Profit. This is the money that a business makes in a certain timeframe. It’s how much is considered profit after paying all of the different expenses. The net profit is important when you’re looking at the overall profits each period. However, when you’re selling your business, you should review this metric for selling single items.
- The Age of The Business. Whether the business is a startup or a more established enterprise can make a difference. You’ll be able to ask for more money if your company has an established clientele. A startup could be in a growth industry, but not be as recognized.
- Website traffic is another metric that can be used to determine what you could sell a business for.
- The growth trends are another variable.
- Business niche is also important. For example, if you’re trying to sell an omnichannel enterprise, you’ll have a brick-and-mortar and online presence. That can make it easier for a future owner to pivot and increase your asking price.
There are other types of assets like tangible and intangible ones that go into determining a price for your business. As an example, tangible assets can include inventory, equipment and commercial real estate.
These are just a few of the criteria you need to go through when you’re wondering, how much do you sell a business for?
How Do You Figure the Worth of a Business?
When you’re determining the worth of your enterprise, it’s important to look for the sweet spot. You don’t want to price too low or too high. A business appraiser is a trusted expert that can give you a valuation.
Generally, there are three different methods used to determine how much any company is worth.
- The earnings-based method determines a company’s value by looking at predicted future earnings and cash flow as well as past results.
- The market-based method uses figures that can depend on several different factors like the size of the company and the industry they are in. Market conditions play a role here.
- If the value of your company’s worth is related to assets rather than operations, and asset-based method is used. This approach is also used when a business is expected to fail.
Keep in mind that a valuation is only a guideline. It gives you a jumping off point for negotiations. However, the final price can be influenced by many different factors like a buyer’s interest, the availability of financing and due diligence.
How Can I Sell My Small Business Fast?
If you’re looking to sell your business quickly, you need to consider the following factors.
- All of your business operations should be clearly documented. This is one of the biggest metrics for your valuation. Some of the key items a potential purchaser will want to see will include a procedures manual that acts as a training tool.
- Other documentation you will need to include to speed up a sale include customer contracts and any employment agreements. Contracts with current suppliers should also be included. The reason is simple. Any potential buyer might need to renegotiate and tweak agreements to complete the purchase.
- Finding the right business broker can make a big difference when you’re looking to sell a business quickly. They can develop a marketing strategy that can include written materials and digital media that clearly outlines the value of your enterprise.
- Any automated processes that you are using can help to sell your business quickly. Make sure they are well documented to demonstrate how quickly the company can grow. For example, if you’re currently using software for invoicing, you’ll need to highlight this to any prospective buyer.
How Can a Business be Sold?
Deciding why you want to sell your business is an important decision second only maybe to the way you go about it. One of the first decisions you will need to make is to consult a lawyer and accountant. There will be estate planning and tax implications that need to be covered.
There are several different ways to accomplish this goal.
Some businesses actually approach competitors when they are ready to sell. Others decide to contract industry consolidators. Using business brokers is a common way that small business owners sell.
Remember that any serious buyer will want to perform due diligence before they sign on the dotted line. That means you need to organize your records into what’s called a confidential information memorandum.
This is the document that gets prepared so interested buyers get an overview of what your business is all about. CIM’s are designed specifically to put your company in the best possible light. They also put potential buyers in a position to be able to do due diligence.
- These have an overview of your company’s key financial statements and products. They should include a cash flow and profit and loss statement. A balance sheet should also be included and several years’ worth of tax returns.
- Other documentation needs to cover business lines, strategies and operations as well as the competitive landscape.
Any businesses financial documents can highlight growth opportunities that are ready to be taken advantage of. They can also highlight any areas that are draining resources for potential buyers.
These documents also help potential buyers who are looking to start conversations with investors and potential lenders.
Opinions expressed here by Contributors are their own.
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