Wondering how to sell your business so you can make the most of your labor of love? First off, congratulations!
Selling the business that you worked so hard to create and build is a big choice, and one that comes with planning, goal setting, searching (for buyers, and maybe even some soul-searching, too), valuations, and a whole lot more.
So before you start advertising your business in the local classifieds, start here: how to sell your business—the right way. To help guide you, we’ve made a list of six simple steps that you can follow all the way to the bank. 🏦
How to sell a business in six steps:
- Time your sale properly
- Organize and prepare your finances
- Determine the value of your business
- Decided whether or not to use a broker
- Find a buyer
Ready to move from for sale to sold? Well, getting there will take longer than reading a few bullet points, but you’ve got to start somewhere! Let’s begin.
Step 1: Deciding to sell your business
Deciding to sell your business isn’t always an easy choice to make. It’s typically not a quick one, either. When you’ve reached this point, it usually means you’re in the midst of change, and that’s totally okay.
Here are just a few reasons why people make the decision to put the proverbial “for sale” sign on their business:
- A career or a life change. For example, a divorce, a death in the family, illness, or, in terms of your professional life, you’ve decided that you’re ready for your next move and a total career change. This could be anything making the switch from running a boutique graphic design agency to opening a bakery or moving from owning a catering company to becoming a full-time accountant. You do you—and sell your business to help you get there.
- Retirement. You’ve put in your time and have decided to call it quits and join the flock of snowbirds who travel south six months of the year. We wouldn’t blame you. ✈️
- Differences: Perhaps after five years in business together, you and your partner have decided that you want different things, and selling the business is the best way to achieve your respective goals. Don’t stress, this happens. And when it does, it’s best to have the agreements made up in advance of the sale.
- It’s just not working for you: You feel overworked, underpaid, or simply bored. When this happens, you’ve got a call to make: should you stay or sell?
Whatever the case, it’s important to know the reason behind your decision. Not only will it help you sleep better at night, but potential buyers will want to know.
Knowing the owner’s motivation can be a big part in their own decision making, helping them understand the reasoning behind the sale and how that might play a part in the future success of the business.
When selling, remember to be open and transparent. This creates trust and a smoother process from start to finish.
Step 2: Time your sale properly
Making the decision to sell your business usually doesn’t happen overnight. But even if you magically woke up with the idea and decided to move it from dream to reality, the plan to get you there can take months—sometimes even years.
This is why planning well in advance is key to making the most out of your business decision.
Allowing for ample space and time in the process gives you the opportunity to make improvements that will increase the business’s valuation. For instance, you might want to clean up your finances, look at ways for reducing operational costs, and create a few campaigns to build up your sales. Or, if applicable, focusing on customer retention by launching a loyalty program, or executing a few tactics that will strengthen your brand awareness.
While these tips do take time to go from ideation to implementation, they can make your business much more attractive to buyers.
Step 3: Organize and prepare your finances
We just mentioned cleaning up your finances, but before you can do that, you’ve got to bring them all together in one organized place.
Start with financial statements like balance sheets, P&L statements, and your tax returns from the past three to four years. If you’ve got the time, take the extra step to review them all with an accountant or Wave Advisor to make sure everything is in good order.
You’ll also want to go into list-making mode to put together the following information:
- Equipment: What’s being sold with the business?
- Contacts: Who are your suppliers? What are their related transactions? Anything outstanding?
- Lease: How long is your current lease? What utilities are included? Are there options to renew?
All of this information can go into an information packet for your potential buyer. This packet will provide an overview of your business, how it’s managed, and the day-to-day operations. It’s helpful for the buyer to have, so they can take over operations as seamlessly as possible.
Step 4: Valuate your business
How much is your business worth? That’s the question you want to find out as you prep for sale so you have a realistic listing price in mind.
Emphasis on realistic. Don’t price the business too high or too low. When you do that, you’ll be stuck with less money than you deserve, or you’ll find that buyers are passing on the opportunity because the cost is too much.
To help you get the right answer, look at hiring an appraiser to complete the valuation. As a third party, they’re neutral to the situation and have nothing to gain from the sale. Plus, they can draw up the necessary documentation that you’ll need throughout the process.
Now, let’s take a step back to step two: timing your sale properly. When valuing your business, you need to give yourself enough time to get all your ducks in a row, which includes the time to boost your valuation. This can be done through cost-cutting tactics and initiatives to increase revenue, brand awareness, and customer retention. You know, all the things that a buyer wants to see before they sign the dotted line. 🖊
Step 5: Consider using a broker
When you’re selling your business, there are two ways you can go: with a broker or without one.
If you’re selling to a close friend or relative, a broker might not be needed. If you decide that’s the case, you can save yourself a few bucks.
But speaking of dollars, you might want to explore hiring a broker if you want the biggest bang for your buck.
Brokers work off commission, so they’ll do what they can to help maximize the sale and their take-home amount. To help with the sale, they can handle the logistics of selling your business, freeing up your time so you can keep the business in good order until it's sold. For example, they might be working quietly in the background with their network of buyers to get the highest price.
But before you decide to hire your broker, be sure to set your expectations, including advertisements, communication, and commission. This makes for a successful and transparent relationship, and a smoother sale.
Step 6: Find a buyer
Last but not least, you’ve got to find yourself a buyer. And you guessed it: this (likely) doesn’t happen overnight.
To get you to that ideal point of having two to three potential buyers, consider boosting your advertising. This is where brokers can come in handy. Not only do they have their networks, but they’ve also got a few marketing strategies up their sleeves to help promote the sale of your business to those who are looking.
Once you’ve found the buyer(s), keep in touch with them. You’ll also want to make sure they’re pre-qualified for financing before you give out any specific info about your business.
Next, you’ll want to bring in your lawyer. Lawyers are extra helpful if you plan to finance the sale and need to work out the details with the buyer. On that note, make sure any agreements are put into writing, and have potential buyers sign a nondisclosure or confidentiality agreement so your business remains yours—at least until it’s theirs.
Now, when it comes to price, allow yourself some wiggle room. Set a firm price or price range that you find reasonable. This lets you allow for negotiation, but on your terms.
Lastly, the signed agreement. Try to get this into escrow, which means that a portion of the purchase price would be held by a third party until agreed-upon obligations are filled. These could be the transfer of assets or a resolution for any outstanding assets, as an example.
After all is sold and done, you might find yourself with a few more business encounters, like a bill of sale that transfers your business assets to the lucky buyer; an assignment of lease; or a security agreement which lets you keep a lien on the business.
Another legality? Your buyer might present you with a non-compete. By signing this, you’re agreeing that you won’t start a competing business that could lure your loyal customers away.
Selling a business FAQs
How much does it cost to sell a business?
This depends on the route you take. If you go with a broker and you sell your business for less than $1 million, expect to pay a commission around 10% to 12%. You’ll also have to pay fees associated with marketing, lawyers, potential transfer fees, and any improvements you make to your business to boost its appeal.
How do you sell your share of a business?
The common way to sell your share of a business starts with an agreement. Try to put this in place with your business partner(s) ahead of any sale. This will help remove emotions and keep things running smoothly.
How do you sell a small business without a broker?
You don’t always need a broker to help sell your business. This can be especially true if you’re selling to someone you know, like a family member or friend. That said, you should still consult with your small business network to get their expertise and advice; trusted sources on the internet (👋); and those who’ve have sold businesses before.
The bottom line on selling your business
Selling your business comes down to six simple steps: the timing of your sale, organizing your finances, valuation, the choice to use a broker or not, and then finding a buyer. And even once all that’s complete, sometimes you need some help.
Be sure to talk to your network of business owners or reach out to Wave Advisors for help.
This is a big move, so you want to make sure that it’s the right one for you, and done right. Which, in the case of selling businesses, doesn’t always mean quick. But trust us: seeing that deposit enter your bank account will make all the hard work worth it.
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The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.