Do you need information on how to sell your business fast without a broker? Are already in the process of selling your small business and you need advice to increase your chances of success? If any of the criteria above best describes you, then below is an in-depth guide for selling a business successfully.
Selling a business is a process every entrepreneur wants to experience but unfortunately, only few will build a business that will be worth selling. There are several reasons why you would want to consider selling your business either now or in the future but I won’t go into the details here. I have already written an in-depth article highlighting why entrepreneurs sell their small businesses.
Although most entrepreneurs don’t plan to sell their businesses when they are just starting up, certain realities such as bankruptcy may later compel them to think in that direction. However, whether or not you foresee such realities, it’s always best to plan how you will sell your business should the need arise.
Whether you have planned from the outset to sell your business or not, you won’t find it easy whenever you just have to do it. Selling a business is difficult and tricky, and it entails many sand traps for the seller—especially when you won’t be involving an investment bank in the process.
Even if you are not selling your business through an investment bank, you can still sell your business successfully. The following tips will help you sell your business for the highest possible gain:
How to Sell your Business Successfully – A Beginners Guide and Checklist
1. Ask yourself some important questions
Before going ahead to sell your business, you need to answer these questions:
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Are you ready to sell your business?
Before selling your business, you must make sure you are ready, both financially and emotionally. Think about what life will be like after the sale. What will you do with the proceeds? What will you do with your time? Will you start another business? Are you sure you won’t regret the decision? Well, the following may be indicators that it’s time to sell your business:
5 Signs that it is time to sell your business
- You can no longer cope with the stress of managing the business.
- You have built the business to a point, and then you realize that you lack the skill set required to go further.
- You are not inclined to invest in growth. That is, you’re comfortable with the current size and profitability of the business and don’t want to make the capital expenditures for growing it further.
Would anyone want to buy your business?
Wanting to sell your business is one thing, and the salability of the business is another. You will only be able to sell your business if it has all the elements that make a business attractive to buyers, such as:
- A long history of profitability
- Huge and loyal customer base
- Competitive edge
- Opportunities for growth
- Perfect location
- Skilled work force
If your business has all these elements, then you can rest assured that buyers will compete to acquire it from you.
Many business owners have no idea of the worth of their business. And this can be a huge disadvantage when selling a business, as most buyers tend to lowball prices. If you have no proof of how much your business is worth, the buyer will most likely make you think your price is too high; even if it’s low already.
So, the best way to know the worth of your business is to consult a business valuation expert. This way, buyers won’t take undue advantage of you.
2. Prepare your business for sale
After having provided satisfactory answers to the questions above, it’s time to prepare your business for the sale. This is where your due diligence checklist for selling a business comes into play. You want to put your business in the best shape so that buyers won’t point at any hole as their reason for wanting to pay less. You can start with cosmetic changes to the business premises and getting rid of outdated inventory.
You should also have proof of your business’s worth at hand because most buyers will request for it. They want to know how you came about your asking price. In addition, you need to get your financial books in order, as buyers will scrutinize them to the digit. Be sure to have the following on hand before taking your business to the market:
- Profit and loss statements for the last three years, at least
- Balance sheets for the last three years, at least
- Year-to-date profit and loss statement
- Current balance sheet
- Full tax returns for the last three years, at least
- List of furniture and other equipment
- List of inventories
- Commercial property appraisal or lease agreement
Be ready to provide even more documents during the due diligence process, when you may need to provide:
- Employment agreements
- Insurance policies
- Customer contracts
- Bank statements, and so on.
3. Spread the word
Today, the internet is the best avenue for finding interested buyers for businesses. Most well informed buyers use the internet to research available businesses for sale. The two largest websites for buying and selling businesses are:
- BizBuySell.com
- BizQuest.com
Aside listing your business for sale on sites meant for buying and selling businesses, you can also spread word of it using other online marketing platforms such as banner advertising, social media marketing, and forum marketing.
When listing your business online, you will need two primary marketing materials. The first is a one-page summary of your business, referred to as a “blind profile” because it doesn’t reveal the identity of the business. The second is a detailed selling memorandum to be sent to serious buyers who have signed a confidentiality agreement.
Offline marketing shouldn’t be totally ruled out. You can advertise your intent to sell your business in newspapers or radio/television networks.
4. Make sure potential buyers are qualified
Once you start attract buyers, you should make them sign a confidentiality agreement before sending them documents that reveal the core details of the business.
In addition, since there is no bigger waste of time than meeting a buyer who will not be able to complete the deal, you will need to evaluate the level of seriousness of each buyer before going further with him or her. You should require them to submit basic information such as the following:
- Name and all contact information
- Previous employment and business ownership
- Educational background
- Funds available to invest and sources of financing
- Minimum monthly income statement
- Intended time frame for completing the deal
- Reason for interest in the business
You can decide to ask for any other information that you think will be relevant to the deal.
5. Negotiate and Sign the deal
After exchanging all necessary information with the qualified buyer, it’s time for negotiations to start between both parties. Once a final price has been agreed upon, the funds will be transferred to you, and the deal will be confirmed.
Selling a Business Fast: 7 Deadly Mistakes You Must Avoid
1. Impatience
Impatience is usually a common mistake most entrepreneurs make when selling a business. They want to exit the business and the want to do it fast. Being impatience can affect your deal negatively because your potential buyers need time to go over the deal and if you add pressure on them to sign the deal; they will smell a rat.
When selling a small business, it’s advisable you keep calm and hide your nervousness or impatience. Even if you are under pressure to sell; don’t act desperate as this could scare away prospects.
“Patience; this is the greatest business asset. Wait for the right time to make your moves.” – J. Paul Getty
2. Indecisiveness
Are you sure you want to sell your small business? How much do you want to sell? Who have you decided to sell to? These are questions you must put to rest before putting up your business for sale. If you don’t find the answers to the questions above ahead of time, you are only avoiding a stumbling block that will get back at you in the heat of the process.
One untold fact in the process of selling a business is that there’s going to be behind the scene politicking; whether you like it or not. After putting up your business for sale, there might be a couple of prospects; which will invariably result to a bidding frenzy and behind the scene lobbying.
“The best thing to invest in your business is your time. To schedule, plan and use time effectively, know your turf and know your objectives. Assess the obstacles and opportunities, then devise your strategies.” – The Mafia Manager
If the above situation arises, then you must be prepared to take a stand and decide who gets the deal. You must also be clear and strict on your terms and conditions; you must stick to your agreement.
No one wants to deal with an indecisive seller; an indecisive buyer is rather preferred. If you have a reputation for changing your stance when under pressure; then let your most trusted business team member oversee the deal.
“Before making an important decision, get as much as you can of the best information available and review it carefully, analyze it and draw up worst case scenarios. Add up the plus or minus factors, discuss it with your team and do what your guts tell you to do.” – The Mafia Manager
3. Not doing a personality checkup
“It takes 20 years to build a reputation and only five Minutes to ruin it. If you think about that, you will do things differently.” – Warren Buffett
Are you a person of integrity? Do you keep to your words? Do you have a strong positive personal brand? These three questions must be answered before you even put up your small business for sale. In an article I wrote previously, I stressed the need to invest in your own personal branding. I also explained that your personality can be a leverage for you in the world of business.
I have seen entrepreneurs raise billions of dollars in capital simply because they are trustworthy; meaning they have business integrity. I have also seen small businesses sold for millions and even billions of dollars because of the reputation of the entrepreneur behind that business.
So before putting up your small business for sale, make sure you conduct a thorough personality checkup because your buyers will definitely do.
- Does your personal name reflect a positive or negative image?
- Do you have friends and associate who are reputable?
- Can your business partners vouch for you?
- How easily can you get an endorsement from someone of high reputation?
These are some of the questions that must be answered during your personality checkup. As a piece of advice, if you know you have a bad reputation; don’t be the lead dog in the sale of your business. Instead, let your selling team be led by someone of high reputation; it will get you a fair deal.
“The most important thing in your business relationships is your reputation for honesty. If you can genuinely and sincerely fake honesty, you will be a success. Never doubt it.” – The Mafia Manager
4. Showing potential buyers the weakness of your business
When negotiating a deal to sell your business; be strategic. You must know your objectives and capitalize on your business strengths. To sell your business successfully and get a fair deal, you must emphasize your business strength or Competitive Advantage occasionally; not its weaknesses.
Hide your business weaknesses but be prepared to defend it should in case the buyers hits on it. If possible, tactically divert your buyer’s attention away from your business weaknesses. There’s nothing wrong with this act; it’s strictly business.
You have done your calculations so it’s left for your buyers to do theirs. If they fail to spot your business weakness, then it’s to their own detriment. You just make sure you keep it that way; it’s business.
5. Inadequate Legal checkup
Inadequate legal checkup is a common mistake made by most entrepreneurs when selling a business. You must strive to avoid this mistake because it’s deadly. One thing with this mistake is that it can earn you a lawsuit, financial losses or loss of certain rights.
To make sure you don’t end up committing this blunder, I will advice you hire an external attorney or legal practitioner to go through your legal framework; it will save you in the long run.
6. Shallow paper work or auditing
Before ever listing your business for sale; you must make sure you have thoroughly gone through the paper work. You shouldn’t bother yourself with paper work preparation; I think the accounting department or a chartered accountant should handle that.
But you must sit and review this paper works thoroughly with your accountants. You may even go a step by bringing external auditors to pick holes in your paper work. It is better external auditors pick holes in your financial statements or paper work than your buyers.
As a last note, you should try to have some numbers, business ratios and business statistics off hand. This will prove to buyers that you know your business in and out.
“Know your numbers’ is a fundamental precept of business.” – Bill Gates
7. Letting the cat out of the bag too early
Until the final papers are signed and business assets transferred; don’t spill the beans. Not to your friends, not to your employees and not even to your family. Only trusted men, who will add value to sweeten the deal should be made aware; you core business team as well should be involved in the deal.
Don’t spill the beans; don’t let the cat out of the bag. Don’t, don’t, don’t. The result of revealing the deal before it is concluded might be more than you anticipated. Revealing that your business is on sale may demoralize of your employees, as they will become more concern about their welfare than your business.
Spilling the beans may also earn you some unnecessary competition, unsolicited publicity and media misinterpretation. Or worst still, you might end up with several lawsuits dangling on your neck. So once again I repeat, never let the cat out of the bag until the deal is sealed.
As a final note, I believe you will find these points I have made useful. So when preparing your business for sale; be sure to avoid these common mistakes and I will see you at the top.