First Steps to Selling Your Business
3/12/2024
It’s important to begin organizing your business for sale well in advance. By planning ahead, you’ll be prepared when the time comes to guide the business through its transition. Consider setting a target sale date and determining your minimum price to ensure a smoother selling process.
Your attorney can help also protect any trade secrets or intellectual property – which should increase the value – and create a confidentiality agreement for prospective buyers to sign. This step helps reduce the risk of sensitive information falling into the wrong hands.
Your accountant can help calculate the business value, determine the optimal price to sell, and make sure that your financial records are organized. By providing accurate sales figures, you can reduce risk for potential buyers.
Consider hiring a broker to compare your business to others that have recently sold and assist to smooth negotiations with prospective buyers.
You could also check with any industry contacts and colleagues to note any weaknesses they see in your business. Address any problems by doing your own due diligence before attempting to sell your business.
One question a buyer often wants to know is your reason for selling. Prepare an honest response that doesn’t suggest the need for urgency.
They’ll probably also be interested in your relationships with your customers and suppliers. 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 just to you. Provide copies of any contracts, supplier agreements, leases or documents that make up the business.
A potential buyer needs correct and comprehensive information to make an informed decision on whether your business is suitable for them. You can help this process by understanding who your potential buyer is, and what they may want to know about your business.
Step 1. Get an Idea of the Value
It’s important to start with expert advice from your attorney, banker, accountant, or business broker – even if the sale is a few years away. These experts can help you determine a rough estimate of what your business might be worth.Your attorney can help also protect any trade secrets or intellectual property – which should increase the value – and create a confidentiality agreement for prospective buyers to sign. This step helps reduce the risk of sensitive information falling into the wrong hands.
Your accountant can help calculate the business value, determine the optimal price to sell, and make sure that your financial records are organized. By providing accurate sales figures, you can reduce risk for potential buyers.
Consider hiring a broker to compare your business to others that have recently sold and assist to smooth negotiations with prospective buyers.
You could also check with any industry contacts and colleagues to note any weaknesses they see in your business. Address any problems by doing your own due diligence before attempting to sell your business.
Step 2. Provide What Prospective Buyers Want
Each potential buyer will probably have certain conditions in mind before they can be persuaded that your business is the one for them. Ask them directly what they’re seeking (an investment, lifestyle, leave a legacy, their own exit) or try to uncover what they like about your business – and what worries them. Finding out their concerns allows you to address them the best you can.One question a buyer often wants to know is your reason for selling. Prepare an honest response that doesn’t suggest the need for urgency.
They’ll probably also be interested in your relationships with your customers and suppliers. 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 just to you. Provide copies of any contracts, supplier agreements, leases or documents that make up the business.
Step 3. Identify Potential Buyers
What kind of person would be interested in your business? Will you be able to find them locally or must you advertise elsewhere? Buyer could include other business owners, investors, competitors, suppliers, or those seeking a career change.A potential buyer needs correct and comprehensive information to make an informed decision on whether your business is suitable for them. You can help this process by understanding who your potential buyer is, and what they may want to know about your business.
Questions Buyers May Ask:
- What makes your business unique?
- How profitable is your business in good and bad times?
- What has been the annual increase in sales?
- When will equipment and trading assets need to be replaced?
- What are the levels of stock and investment required in the foreseeable future?
It’s likely that potential buyers will want to view at least three years of financial statements, including income statements and balance sheets.
Make sure you:
Buyers prefer low risk with high reward when they consider investing in a small business. Ultimately, buyers will look for good cash flow and solid systems with the potential for further growth.
SouthState is proud to support the small businesses in our local communities. We provide a robust suite of products and services tailored to small businesses so you can operate at maximum efficiency. No matter where you are on your entrepreneurial journey, we’re here to help you focus on the next best step for your business.
Step 4. Get Your Business into Top Shape
Potential buyers are searching for businesses that are in top working order. It’s critical you work through a process of getting every aspect of your business in the best possible shape to attract the right buyer.Make sure you:
- Tidy up your financial records
- Have optimal levels of staff and inventory to show your business operates efficiently
- Reduce late paying customers and remove any bad debts
- Resolve any legal issues
- Replace or repair faulty fixed assets
Buyers prefer low risk with high reward when they consider investing in a small business. Ultimately, buyers will look for good cash flow and solid systems with the potential for further growth.
SouthState is proud to support the small businesses in our local communities. We provide a robust suite of products and services tailored to small businesses so you can operate at maximum efficiency. No matter where you are on your entrepreneurial journey, we’re here to help you focus on the next best step for your business.
