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Maximizing the Sale of Your Business

An entrepreneur's decision to sell their small business can be difficult. Most business owners have put considerable time and energy into their business. Prospective buyers worry about business valuations and cash flow. Entrepreneurs focus on financial records and financial statements during the sales process.

You may only have one opportunity to maximize your sale price. Do your due diligence before the sale to receive the best price from the new owner. This article explains what to expect and helps you plan before you sell your small business.

Deciding When To Sell a Small Business

There are some scenarios when it's optimal for entrepreneurs to sell their business as it can increase their asking price:

  • The economy is doing well
  • The small business had a profitable year
  • The future forecast for your business is positive

Realistically, deciding when to sell a business often turns on personal considerations and economic realities rather than ideal market conditions or business plans.

Create an Exit Strategy

Sit down and decide what matters the most to you before you open your business. Reevaluate this every year. Do you want to sell your small business when you have a certain bottom line number? Is there an asking price that is your ideal number? How much will be "enough" to let you walk away from the business? Do you want to sell to a new owner who will take care of your customer base, and the bottom line asking price is less important to you?

If you can achieve what matters most, then it may be the right time to sell.

Selling a business, whether a startup or a longstanding business, can be a long process. It is essential to start planning for it well in advance. Selling a business can take up to a year to complete. Depending on the complexity of the small business, it can sometimes take more. Make sure you have enough cash flow to cover your debt liabilities and tax returns during this process.

Use a Business Appraiser To Value Your Business

Many business owners need to set the selling price of their small business at a reasonable price. They value the company based on their hard work in the day-to-day operations rather than real-world value. Having an outsider like a business appraiser eliminates the sentimental value in a business valuation.

Documents Needed To Value Your Small Business

Determining the value of your small business requires a fair amount of documentation, including the following:

  • List of liabilities, like credit card statements or U.S. Small Business Administration (SBA) loans
  • Last three years of tax returns to the states you operate in
  • Last three years of tax returns to the IRS
  • Intellectual property registrations
  • Last three years of balance sheets
  • Real estate documents

Many business owners are reluctant to spend money on getting an appraisal. Like many business decisions, some upfront investment can return big dividends down the road. Business appraisers generally are accountants (CPAs). The appraisers place values on your assets. They can also value intangible assets like "goodwill." An entrepreneur should be able to sell the business for more than the worth of its simple assets.

Looking for Buyers

Finding a buyer for your business can be challenging. The market for selling businesses is unpredictable.

  • Hire a business broker to find potential buyers for you. Business brokers understand the ebb and flow of the market and your industry. They can also provide insight into the value of your business.
  • Larger regional or national businesses may want to acquire your customer base or inventory.
  • Your local competitors and peers may be able to help. Even if a different local business owner doesn't want to buy your business, they probably know someone who does.

Financing the Sale of Your Business

The most common way to finance the sale of your business is through seller financing. This form of financing is actually the most common form of financing in small and mid-sized sales. Expect the buyer to look to the owner for financing.

If you're unwilling to finance at least part of the sale, you may find selling a business difficult. Plus, there is always the concern the buyer will only make payments once the loan is paid off.

  • Consider requiring the buyer to make a larger down payment or offer additional collateral to secure the loan.
  • Request a non-compete agreement in the event the potential buyer does not pay their loan to finalize the deal. This keeps them from using your trade secrets in your area.
  • Request a non-disclosure agreement. This prevents the buyer from discussing the details of the sale or financing.

While seller financing is common, it pays to be careful when structuring the financing. The new business owner could depreciate your business during this financing. This ruins the goodwill you worked so hard to build.

Essentials of the Sales Agreement

Your sales agreement is the most important document in the sale of your business. Make sure you have an attorney draft and review it.

Your agreement should set out everything that you intend to sell and include:

  • Names of the buyer, seller, and the small business
  • Assets being sold
  • Purchase price
  • Payment terms
  • List of inventory included in the sale
  • Terms regarding access to any business information
  • Fees, including brokers fees
  • Date of closing
  • Compliance with any required state, local, or federal regulations

Get Legal Help

Selling a business requires understanding the business's value and worth. A skilled lawyer can help guide your company through the process and maximize your sales. Contact a business and commercial law attorney in your area to get the best return on investment.

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Contact a qualified business attorney to help you tie up all loose ends when closing your business.

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