Sale of Small Business: Everything You Need To Know
It's important to be strategic about selling your small business to get the best possible price and create a smooth transition.3 min read
2. Valuing a Small Business
3. Finding Potential Buyers
4. Choosing a Broker
5. Financing a Small Business Sale
6. Creating a Sales Agreement
The sale of small business is the decision to seek a buyer for your enterprise. It's important to be strategic about this decision to get the best possible price and create a smooth transition.
Timing a Small Business Sale
The best case scenario is to sell your business in a good economy, when you are profitable and show positive financial projections. However, in the real world, you must account for other factors based on your personal and economic situation. When determining the right time to sell, come up with an amount that would persuade you to let go of your business. If the market will support that amount, it may be the right time to sell.
You'll likely need months or even years to sell your business once you decide to put in on the market, so begin planning long before you want the sale to be completed.
Valuing a Small Business
Avoid pricing your business too high because you're assessing the value based on the work you've put into it rather than its potential value on the market. A professional small business appraiser can help you make this distinction. Although professional valuation services represent an additional cost, it may be well worth your while when it comes to getting the best possible price for your company.
Look for an accountant who specializes in the appraisal of small businesses, who can help you place a value on your company's intangible qualities like market goodwill. Your business is likely worth more than the cost of its assets. Having an expert appraisal will also make your company look more professional to potential buyers.
Finding Potential Buyers
Regional or national businesses in your industry that are larger than your company represent a potential market for your business. You may also want to look to local business owners, who may either want to purchase your business themselves or have a professional contact who may be interested. Consider hiring a mergers and acquisitions professional or business broker, who will understand the market for a business like yours and have contact with potential buyers.
Choosing a Broker
If you do decide to work with a business broker, you want to choose an experienced professional who will know how to market your business and find potential buyers, leaving you to run your business seamlessly. Before hiring a broker, talk about his or her plan for marketing your company and verify experience and certifications. Make sure he or she holds certification from either the International Business Brokers Association or the relevant state association. The CBI designation from the IBBA indicates that the broker has met certain education requirements and adheres to the association's ethical standards.
The broker's marketing strategy should include information about how he or she will protect your privacy and advertise your business. Find out the number of listings he or she is currently managing and how many businesses he or she has successfully sold in the past. Come up with a plan for screening prospects and determine the point at which you will meet a potential buyer.
Financing a Small Business Sale
Seller financing is the most common form of financing for the sale of both medium-sized and small businesses, which means a potential buyer may rely on you for financing. You will have trouble selling your business if you are unable to offer financing.
You should structure any financing agreement with a buyer carefully with the assistance of an attorney. You want to prevent a situation in which he or she stops making payments on the loan. This may require collateral for the loan beyond the business itself.
Creating a Sales Agreement
Your sales agreement is a legally binding document, so you should not prepare it without the help of an attorney. This agreement must spell out:
- The full legal names of the buyer, the seller, and the business
- The assets and inventory included in the sale
- The agreed-upon price and payment terms
- Broker fees and any other applicable fees
- Terms of access to intellectual property and documents associated with the business
- Closing date of the sale
- Compliance with state, local, and federal laws
If you need help with the sale of your small business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.