There are many reasons why you may be looking into selling your business. This is a huge decision to make regardless of whether it’s personal, professional, or financial. Here are a few things to consider to get you started in this complicated process:
The first thing that you need to do is to find out how much your business is realistically worth. This is complex, so hire a business appraiser and an accountant to get the most accurate numbers and to establish credibility. You’ll need a ton of documentation for them to analyze so here is a checklist of the paperwork you’ll need to gather:
- income statements
- lease agreements
- corporate books or partnership agreements
- existing contracts with employees, customers or suppliers
- records of accounts receivable and payable
- balance sheets and income tax returns from the last 3 to 5 years
- any patents, trademarks or copyrights that you have filed for
There are also two popular methods for evaluating the value of a business: 1) you can calculate net worth by subtracting liabilities from assets or 2) value your business based on its income or profits and the return on investment that your potential buyer could reasonably expect. It also helps to create an itemized profit-and-loss statement that shows what excess cash your business generates. Stan Crow, of S. Crow Collateral in Boise, Idaho suggests that the seller “prepare a spreadsheet that shows the numbers from the business’ last three years’ tax returns, with adjustments to add back your salary, depreciation deductions, contributions, interest expense, interest income, and any other items of income or expense that are not integral to the business.” This can give the buyer a clear overview of the business at a glance.
Once you have established the value of your business, the second step is to arrange your assets for sale. Just as you would prepare your house if you were putting it on the market by painting and cleaning, use a critical eye when evaluating your office space, tech equipment, and most importantly your financial statements. Everything has to be in pristine order if you want to reach your top dollar potential.
Now that your business is in order, find a reputable business broker. Look for someone who is a member of the International Business Brokers Assn. and who has either the Certified Business Intermediary professional designation for smaller businesses or the Merger & Acquisition Master Intermediary designation for middle-market businesses. With your broker’s help you will orchestrate an “offering memorandum” which will include all of the financial statements that we mentioned earlier plus all of the contracts that will pertain to the future operations of the business. Your broker will also draw up a confidentiality agreement with potential buyers to keep the fact that your business is for sale private. This type of leak could be detrimental to the ongoing operations of your company if customers find out that you are planning to change owners.
Finally, once you have an offer, contact a business lawyer to review all of the paperwork and establish precise deadlines of when you expect each step of the process to be completed with your buyer. Your lawyer can also go over the lender’s terms and ensure that your best interests are being addressed.
Selling your business can be a stressful, emotional progression but when you know what you need to do and have the right professionals on your side, the transition can be a smooth process.