Are you looking to sell a business? There are several things to consider when selling a business before you ever put it on the market. First, if you own a small business, a broker may be required, so you have time to take care of what you know best–your business. Small business owners do have the option to sell their business themselves if you choose to do so.
How Do I Sell My Business?
Calculate your business valuation
Consult a professional before you decide to list the sale price at an unreasonable amount. An independent valuation will give you a realistic assessment of the company's value. There are also other methods to determine a reasonable sale price, such as considering market trends and comparing similar businesses.
Make Sure Your Financials Are in Order
Most cases will require you to provide the most recent three years of your tax returns and financial statements (balance sheet and income statement, cash flow statement)
Decide if You Should Hire a Business Broker
You have two options for selling a business: selling it yourself or hiring a broker.
If you are selling the company to someone close to you or a trusted friend, you could sell it yourself. Otherwise, find a reputable broker.
Locate Pre-Qualified Buyers
Multiple offers are beneficial for many reasons.
Sometimes, banks may require sellers to contribute some of the financing. So, don’t be too excited about the first offer and assume that the company will be sold.
Sign and Finalize Legal Documents
After finding a qualified buyer and accepting an offer, it is time to close the deal. You should have your lawyer take care of the majority of this stage.
How Do I Value My Business?
A qualified appraiser will provide a detailed report with documentation to determine the company's value for a set amount.
Here is an article about valuing a business.
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Who Can Help You Sell a Business?
Selling via a Broker Vs. Selling on Your Own
There are both benefits and disadvantages to selling your business either independently or through a broker. You will need to determine the actual value of your business before you sell it.
Brokers can handle much of the heavy lifting, including prospecting and valuations in return for a commission. They also handle the sale and marketing while you continue to run the business.
Best Places to Sell Your Company
There are many ways to sell your business. Each niche is unique, but a combination of several options can lead to encouraging results.
- A Business Broker. An experienced broker in helping you sell your business can help you navigate the process, including your valuation, marketing, and, finally, the sale.
- An Online Group. You can also find potential buyers for your business through online groups. These groups allow you to have conversations, place ads, and give advice to interested people.
- Your larger network of connections. Include business partners, co-workers, or even employees. You should fine-tune the pitch and communicate the benefits that potential buyers will get by purchasing your business.
- Social Media. There are many social media platforms that you can use to sell your business, such as Facebook and Twitter. These can be used to attract qualified buyers and generate interest in your company.
- An Investment Bank. These banks can provide capital to purchase your business and the business knowledge necessary to speed up the process.
- A website for listing online. When selling your business online, you can use online listing websites to help you distinguish the window shoppers and genuine buyers. These websites offer services specific to your business, such as the ability to categorize by industry, location, or even price. However, sellers should still exercise caution and conduct thorough due diligence when interacting with potential buyers.
Here is an article about where to sell a business.
Legal Considerations When Selling a Business
Below are critical legal issues you should consider before embarking on this process. After reviewing each issue, you will decide if you are ready to sell the business or need to make changes in the company or the management team before it is too late.
Competent Legal Counsel
Although you may have used legal counsel for all of your corporate needs until now, the area that deals with mergers and acquisitions is very specialized.
Books and Records
Your company’s buyer will review your contracts, financial, and personnel records. The buyer will request a "due diligence list" with all information that they need to verify.
Nondisclosure Agreement
Before you meet with potential buyers, it is crucial to sign a nondisclosure agreement. An NDA states that they will keep your confidential information in confidence for at least five years.
Letters of Intent
A letter of intent (LOI), which is non-binding, is an offer by the buyer outlining all the proposed transaction’s significant terms and conditions. The LOI will include details such as the transaction's structure, total purchase price, closing date, and other matters like escrow or indemnification.
Escrow
A portion of the purchase price is typically held in escrow for some time by a third party, usually 12-18 months. This is done to verify that the seller has fulfilled the warranties and representations in the business purchase agreement.
The escrow amount is usually 10-20% of the purchase price. You, the seller, want to keep the escrow amount as low and the escrow period as short as you can.
Limitation on Liability
The buyer can insist that there be no limitation of your liability for any misrepresentations or representations made by the seller. You will want to minimize your liability in such cases.
Non-competition Agreement
Noncompetition agreements that are signed to the sale of a business can be enforced in almost every state. However, enforceability and specific requirements may vary by state. Sellers should consult with legal counsel to ensure compliance with local laws.
Employment agreements
Sometimes, the buyer may ask you to stay on for a transitional period or continue running the business for two to three years. The buyer may not be willing to move forward unless you have committed to working for them for a certain period.
You should be prepared to accept a job offer if you want to remain. Buyers are more likely to bring this up at the end of the process when they have the most leverage and everyone is on track to close the deal.
Share Purchase Agreement
A share purchase agreement (SPA) sets out the terms and conditions for the sale and/or purchasing of shares in a company.
Confidentiality Agreement
Knowing that your employer is being sold can cause anxiety. Therefore, only key employees must be informed about the transaction until you feel confident that it will close.
Here is an article about key legal issues in selling a business.
What Legal Documents Do I Need to Sell My Business?
Some of the standard legal documents and contracts associated with a business sale include:
- Business Purchase Agreement
- Asset listings
- Non-compete agreements
- Guidelines for website use and domain name
- Bill of sale
- Security agreement
Here is an article with the definitive guide to selling your business.
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