The 7 Essential Steps When Selling a Business

The 7 Essential Steps When Selling a Business

Whether it’s a small coffee shop or a large manufacturing company, selling a business can be a very daunting task. With its long and detailed process, you need to take a lot of things into consideration. It’s definitely a complex venture that you should avoid doing on your own – unless you want to set yourself up for a low price and a painful process.

Enlisting the help of a broker and other professionals to help you through the whole selling process will ensure you have an advisory team you can rely on, as you work your way through each step of the selling process. It takes experience, knowledge and skill to sell a business at the best price and in the shortest time.

So, what are the essential steps to ensure your success in selling your business?

STEP 1: Prepare the Documents

You first need to gather all your financial statements, tax returns, and other documentation that will be required to sell your business. These documents are not only required by the buyer, but also by your accountant, financier and solicitor. Make sure that they are all up to date. The documents, especially the financial statements and tax returns, must date back three to four years. Prospective purchasers want to see consistent growth and gain confidence in what they may end up buying.

You also need to pull together any relevant paperwork that has something to do with your business – such as permits, licensing agreements, and leases. Ensure that you can create copies of these documents to distribute to interested buyers. Potential buyers would want to evaluate your business based on fact, and will want to verify what they are being told, after all people don’t usually buy pipe dreams!

All of these documents will be used to create a business summary and information memorandum which will allow you to tell the business story. Taking the time to organise these items can create a huge impact on how prospects view your business.

STEP 2: Determine the Value of Your Business

Setting the right sale price can be very difficult, but this is a critical step in the sale process. You want to determine the worth of your business from a realistic point of view, so you can avoid setting the price too high or too low.

So how do you set a realistic and fair market price?

An experienced business broker can work with you to value the business before putting it up for sale. Brokers can help you understand what your business is worth and why, as well as give you an insight on the market trends. Brokers know what variables are likely to enhance or even detract from the sale price expectations.

Most of the time, knowing the selling prices of similar businesses in your area can provide an idea of how much your business is worth. Ultimately, the selling price is determined in the market by potential buyers, the quality of how your business is presented, and how much buyer enquiry can be achieved. Brokers should have exceptional marketing reach and have buyers wanting to know more.

STEP 3: Create a Business Summary

When everything is organised and documented, your broker will use the compiled information to prepare a business summary, a detailed brief of your business that allows you to present your business’ story, and financial information.

The business summary will also describe your market niche and its earning potential. It’s a great way to educate prospective buyers in a format that’s quick and easy to read. These summaries are not designed to reveal the name of the business or the address so at this stage, it is provided in a confidential manner and from here the buyers can decide to enter into a confidentiality agreement and proceed more formally.

STEP 4: Build an Information Memorandum

A detailed and well-presented information memorandum is a great selling tool, as it presents a good glimpse about the various components of your business without revealing too much information.

When done right, this intrigues the buyers and lead them to ask more information about your business. In this way, you can grow your list of potential buyers and begin a conversation with them.

STEP 5: Allow a Broker to Manage Enquiries

Selling your goods might be easy, but selling your business? Not so much. That’s why you need to hire a broker that will take care of everything from start to finish.

The broker’s services include managing all enquiries from buyers who have gone past your business summary, so you don’t have to.

The broker can help free up time for you to take care of other things, such as keeping your venture up and running.

Brokers are required to make the sale as discreet as possible, all while doing their best to get the highest possible price for your business.

STEP 6: Develop a Marketing Strategy

Often times, brokers take care of the marketing aspect when selling a business. They prepare a marketing strategy that’s tailored to your business. The marketing of the sale can either be done in confidentiality or be known by the public. Most of the time, owners don’t want the public to know that they are for sale because going public can affect sales and stifle growth opportunities.

Professional brokers know how to advertise the sale of your business without saying too much, yet still trigger interest and attract the right buyers. Their goal when developing the marketing strategy is to get as many buyer enquiries as possible to up their chances of getting the best price and selling the business fast.

STEP 7: Qualify Potential Buyers

Don’t be surprised if you get a lot of enquiries from interested buyers during the course of the selling process. However, not all of them would qualify to purchase the business. Some of them really don’t have the intention of buying and can waste a lot of your time.

An expert broker knows what to ask potential buyers to screen them so you won’t spend your time and energy in unqualified buyers. They always prequalify potential buyers for financing before giving out information about your business.

Are you now convinced of the need to have the right team around you when you sell your business?

It is always a good idea to have a professional business broker to help you sell your business from start to finish. You can avoid problems and make sure your sale is well-managed and done discreetly. On top of it all, you can free yourself from all the hassle and emotional stress – an important factor!

If you would like a FREE business appraisal, please get in touch with the Merchant team.