If you’re a small business owner trying to sell your business, finding the best buyer can be difficult and stressful. Keep reading to discover five time-tested tips for selling a business to make things a little easier.
#1 Find the Best Broker to Bring Credibility to the Sale
A great business broker can help you at every step of the selling process, from establishing the worth of your business to finding buyers and then closing the deal. Brokers have often sold their own businesses, so they’re experienced and knowledgeable about the process. And even if you have the ability and skills to sell your business on your own, an established broker will bring their long-standing connections, influence, and credibility to your sale.
How To Find the Best Broker
An experienced broker should increase your profit from the sale. How can you find the best broker?
- Seek referrals: If you have connections within the business world, consider asking your colleagues who they suggest you use. Other good sources for referrals include lawyers, accountants, and financial advisors.
- Check the IBBA: The International Business Brokers Association trains brokers. Their online directory contains around 1,000 names, and drawing from this list promises brokers who have the training and experience you require.
- Interview them: Always interview a potential broker as you would your employees. Ask about their experience, their personal approach, and past successful deals.
- Verify qualifications: Look into the broker’s certifications and licensing. While no license exists specifically for a business broker, many states require they obtain a real estate license. The IBBA also offers a Certified Business Intermediary program.
- Confirm specialization: Not all industries operate the same, so choose a broker who knows the specifics within your niche. Are you selling a technology business? You won’t get the best results from a broker with experience only in the financial sector.
#2 Start With a Business Valuation
It’s hard to quantify what your blood, sweat, and tears are worth, but a business valuation is a good place to start. When you properly determine your business’s value, you can feel more confident about targeting buyers who will make appropriate offers.
Once you find a broker like Terry J. Watts, they can offer an objective valuation around which you can frame the rest of the process. They’ll accurately consider the factors affecting your business’s worth, including the following:
- Projected growth and potential
- Specific industry considerations
- Earnings and profit history
- Location of the physical building
- Existing client base
- Market conditions
- Quality of employees
- Reputation within the community
An accurate valuation also enhances your buying power and helps you recognize lowball offers.
#3 Present Your Business Well to Buyers
One of the best tips for selling a business involves perception. How are you presenting your business to potential buyers? A trustworthy broker like Terry Watts will devise a marketing and advertising campaign that highlights the best aspects of your brand, such as the following:
- Lease information that’s transparent
- Details about your assets
- Current stock levels
- Financial strengths
- Employee details and more
However, unlike traditional marketing, your broker won’t spread that information through television or social media. They’ll only approach specific potential buyers and quietly discuss the details. With a confidentiality agreement in place, you won’t risk the information spreading to the general public and affecting the sale.
#4 Find Buyers That Fit the Sale You’re Looking For
Quality buyers make quality offers, but how does your broker find the best one? You can categorize buyers into four main types as follows:
- Individuals: These buyers often have some capital saved up from a previous sale but may require a small business loan to meet your asking price. They’ll want a profitable business, as they won’t make large-scale changes after purchasing it.
- Strategic: Sometimes referred to as ‘synergistic buyers,’ these people sometimes buy out competitors, expand their reach within their niche market, or streamline their supply chain.
- Financial: These buyers seek a high return on investment, often by growing your business and then reselling it. They include private equity firms, family office buyers, and individuals with high net worth.
- Internal: When a group of your employees or the management team purchases the business, you’ll experience a smooth transition. If your business is a public entity, a broker may suggest using the Employee Stock Ownership Plan to facilitate the transaction slowly but surely.
#5 Create the Deal That’s Right For Your Business
Once you find the right buyer, your broker can structure the best deal. This process requires excellent communication and negotiation skills across several factors beyond the asking price.
Consider the following:
- Downpayment: While down payments on the transaction vary, this may affect your slice of the pie. Negotiate a downpayment that’s favorable, depending on the finance agreement in place.
- Seller’s financial availability: Sometimes, the buyer must take out a loan to afford the asking price. If you can offer a loan to the buyer, it cuts out the middle agents like a bank. The move should allow you even more profit from the interest you can charge.
- Transaction structure: Whether your business is a sole proprietorship, corporation, or another type, the details will affect how you structure the sale. Common options include selling off the stock, organizing it as a sale of assets, and installment sales.
- Non-compete agreements: Some buyers might ask you to sign a non-compete agreement, which prevents you from starting another business that can compete with the one you’re selling.
More Tips for a Stress-Free Sales Experience
To gain the maximum benefits, consider these other tips for selling a business:
Leave the Business
Have you decided whether you’ll leave the business after you sell? Experts agree that’s best. Selling a business often involves complicated and intense emotions, so leaving provides closure and the ability to move on.
To ease the transition, remind yourself why you’re selling the business. Look at all the benefits you gain from completing the transaction, such as new opportunities, increased freedom, and, of course, a large sum of money.
Develop an Exit Strategy
Even once you receive the check, there’s a period of transition that helps the buyer learn the nuances of the business, reorganize the hierarchy, and become familiar with the company’s finances.
It’s rare that a seller receives the entire sum of the sale in one transaction, which helps motivate them to stick around during the transition. Consider what your buyer needs, how long you’re willing to spend transferring the operation, and what your role is during that period.
Develop a Qualified Team
While your broker handles much of the selling processes, you’ll still spend considerable time helping facilitate the sale. Well, before you consider selling, train your employees to function without you.
A well-trained team is attractive to potential buyers, and it prevents mistakes or slowed production when you’re not around to help. Also, consider that the buyer likely won’t replace every employee. To prevent the business from tanking after the sale, they’ll need an experienced team that can operate without you.
When you prepare for the sale, start scaling back your duties and delegate more responsibilities to your workers.
Protect Financial Futures
You’ll want to protect the financial futures of both your family and your employees. Talk with the buyer about offering retention bonuses to motivate the most essential leaders to stay with the company. To increase employee security, you can also give employees stock in the business as part of the transaction.
Consider how big of a downpayment you need to keep your family financially secure after leaving the business and how frequently you’ll receive future installment payments.
Consider Tax Implications
Lastly, don’t overlook how selling a multi-million-dollar business will affect your taxes in the years to come. One solution is transferring some of the assets to your heirs before the final sale. It allows the buyer to retain everything and grow the business while guaranteeing your financial future.
Along with your business broker, assemble a team of tax experts and estate planners to minimize your tax obligations. Also, consider your retirement goals and whether selling the business will further or hinder them.
Contact Terry Watts To Sell Your Sacramento Business
As an experienced and trusted business broker in Sacramento, Terry Watts uses all these tips for selling a business and more to produce impressive results. From the business valuation to closing the deal, we make the process easy and maximize potential offers. Book a consultation at (916) 905-4997 or get in touch with us online today!