7 Factors to Remember When Selling Your Business
4/18/2024 - Transition Your Business | Small Business Resources
When preparing to sell your business, it’s useful to consider the buyer’s point of view.
Business buyers usually prefer low risk with high reward when they consider investing in small business. When buyers look for a business to purchase, they look for good cash flow and solid systems with the potential for further growth.
Buyers will need accurate and complete information to make an informed decision on whether your business is suitable for them. You can improve this process by understanding who your potential buyer is and what they may want to know about your business.
In general, there are seven key factors to consider when someone is considering buying out a business:
Business buyers usually prefer low risk with high reward when they consider investing in small business. When buyers look for a business to purchase, they look for good cash flow and solid systems with the potential for further growth.
Buyers will need accurate and complete information to make an informed decision on whether your business is suitable for them. You can improve this process by understanding who your potential buyer is and what they may want to know about your business.
In general, there are seven key factors to consider when someone is considering buying out a business:
1 - Why Are You Selling?
This is going to be one of the first questions a prospective buyer asks you. You should have an honest response that doesn’t suggest the need for urgency. Owners commonly sell their businesses for any of the following reasons:- Retirement or illness
- To realize capital gain
- The business future is uncertain
- They don’t have a successor
- Their heart isn’t in the business
2 - Timing Of The Sale
You’ll get the best deal for your business if you plan the sale well ahead of time. This will give you the chance to increase profits and sales, as well as your customer base. All of these things make your business more attractive to potential buyers. If they’re aware that you’ve planned the sale well in advance, this is an indicator to them that you’re not being forced to sell in a hurry.3 - Preparation and Information
Being prepared for questions will build credibility with the potential buyer. Make sure any vice presidents or other managers are prepared in case of emergency.Ways To Make Your Sale Ready Include
- Outline your competitive advantage and unique selling points;
- Demonstrate how you've successfully handled the ups and downs;
- Especially for a seasonal business;
- Have pertinent information readily available (leases, customer agreements and intellectual property);
- Lay out a clear transition plan
- Know what levels of stock and investment will be required in the foreseeable future.
Buyers will be aware that there’s a risk of customers leaving after you sell. You’ll need to reassure them that your customers are loyal to the business rather than to you.
Your employees staying on is also vital to the sale going smoothly. Learn more about employee benefit solutions at SouthState.
Gather your financial statements and tax returns dating back three to four years and review them with your accountant. In addition, develop a list of equipment that's being sold with the business. Then create a list of contacts related to sales transactions and supplies and dig up any relevant paperwork such as your current lease. Create copies of these documents to distribute to financially qualified potential buyers.
Talk to your staff and ensure they’re making the most of techniques like up-selling and cross-selling. Review their performance so that customer satisfaction is optimal.
Demonstrating how sharp your internal processes are will show buyers that your business is functioning efficiently and having sales records on hand to prove it is essential.
There are several ways you can go about valuing your business. Which one you choose depends on what kind of business you own, who you’re thinking of selling it to and your reasons for selling in the first place. Talk to a business broker about the most common methods of valuation and which suits your business best.
How do I update my business for sale?
Your employees staying on is also vital to the sale going smoothly. Learn more about employee benefit solutions at SouthState.
4 - Financial Statements
It’s likely that potential buyers will want to view at least three years of financial statements, including income statements and balance sheets. They’ll be buying into your business’s future profitability, so explain any differences between what the finances are showing now, and what they could be showing in the future.Gather your financial statements and tax returns dating back three to four years and review them with your accountant. In addition, develop a list of equipment that's being sold with the business. Then create a list of contacts related to sales transactions and supplies and dig up any relevant paperwork such as your current lease. Create copies of these documents to distribute to financially qualified potential buyers.
5 - Sales and Profits
Ideally you can show a trend of increasing sales and profit, so focus on marketing and identify which costs you can remove. Can you buy materials cheaper, switch suppliers of overheads (such as energy and internet costs), or be more efficient with processes so you don’t need as many staff or contractors?Talk to your staff and ensure they’re making the most of techniques like up-selling and cross-selling. Review their performance so that customer satisfaction is optimal.
Demonstrating how sharp your internal processes are will show buyers that your business is functioning efficiently and having sales records on hand to prove it is essential.
6 - Get an Up-To-Date Business Valuation
Your business is worth what someone’s prepared to pay for it, and what you’re willing to sell it for. To get an idea of either and to find the right balance, you need to figure out what area of the ballpark you’re playing in.There are several ways you can go about valuing your business. Which one you choose depends on what kind of business you own, who you’re thinking of selling it to and your reasons for selling in the first place. Talk to a business broker about the most common methods of valuation and which suits your business best.
7 - Finally, Give Your Business a Makeover
In much the same way that you’d spruce up your house before it goes on the market, giving your business a makeover so that it’s presented to its best possible advantage is essential.How do I update my business for sale?
- Tidy financial records
- Review staffing needs
- Review and update inventory
- Replace equipment and vehicles as needed
- Refresh signage and marketing material
