How to Sell a Small Business in California
As you think about how to sell a small business in California, you must realize that it will take a lot of time and consideration.3 min read
As you think about how to sell a small business in California, you must realize that it will take a lot of time and consideration. The best time to begin planning the sale is one to two years before it will happen. That way, you can make sure the sale goes through smoothly.
What Should You Do Before Putting Your California Small Business on the Market?
There is no general blueprint for selling a small business in California, but if you want to form the right strategy for your situation, you must take your goals and circumstances into account. When you are sure you want to sell your business, consider the following:
- Review the reasons why you're selling the business.
- Decide when you will sell your company. The best time to sell your business is when it is profitable and it's consistently increasing in profits from month to month. However, it can take between six months and two years for you to finalize the sale of your business, so start your planning as soon as possible.
- Make your business more attractive to prospective buyers. You can do this by increasing the profits of your business, maintaining a strong customer base, and signing a major, multiyear contract.
- Decide if you will sell business assets or the entire entity. In an asset sale, you will be selling the assets of the business, as well as its liabilities. If you are conducting an entity sale, you will be selling business interest.
- Prepare your business records before putting your business up for sale. Include federal tax returns for the business and monthly bank statements from the previous three years, a copy of the current lease, and a list of all the assets you will sell with the business. You will need to prepare these records for prospective buyers, your landlord, lenders, and a note buyback firm, etc.
- Write a summary of your business and make it as complete as possible. Your summary should include information about the history of the business, the date you established it, and the number of employees who currently work for the company.
Will You Need Outside Help?
Ultimately, you will need outside help. Before putting your company on the market, you must hire someone who will provide a professional appraisal of your business. The appraiser will determine the worth of your company, which will help you determine your asking price.
Next, figure out if you want to sell your business by yourself or employ a broker. You will have to pay for a broker's services, so selling the business by yourself might help you save money. You might not even need a broker if you are selling your business to a family member or an employee. However, using a broker can be helpful if you're selling your business to a relative stranger.
Depending on the length of the process, a broker would be beneficial because he or she can get you into contact with qualified buyers. Brokers can also help you by allowing you to focus on your business, keeping details of the sale private, and negotiating the highest price for your business.
What Legal Considerations Should You Make When Dealing with a Buyer?
After all other considerations are met, you can choose a buyer. Vet each prospective buyer and make sure you keep a folder that contains all pertinent information and a list of contacts.
When dealing directly with buyers, hold them to agreements and keep all agreements in writing.
- Have any potential buyers sign and date a confidentiality agreement. Prospective buyers must sign a confidentiality agreement before you provide them with any information about the business or the sale. Tell the buyers that you want to keep the sale confidential and that they are legally bound to do so, as well.
- Include a purchase agreement as soon as the business makes escrow.
- In addition, you may need to provide a bill of sale, assign a lease, and procure a security agreement. The agreement allows you to retain a lien on the business.
- As the sale is finalized, you may have to sign a noncompete agreement, in which you promise not to start a new business that competes with your old one or to take customers away from your former company.
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