If you've ever sold a home, you may think you know how to sell a business. While some of the steps are similar, there are quite a few differences between selling a business and selling personal property.
How to Sell a Business
Selling a business may mean selling shares of stock or stock options. Technically, those holding the stock of a corporation are the owners of the corporation, even if the corporation is a privately held corporation.
Questions to Ask Prior to Selling a Business
If you've made up your mind to sell your business, there are several questions you should ask to determine the viability of selling the business to another owner. Each business is unique and carries with it different business and sale ramifications. Anyone interested in selling his or her business should consult a local business attorney about the legal requirements for listing the business for sale.
If you think your business is free and clear to sell on the open market to an interested party, there are still questions you need to ask yourself.
- Is my business profitable? Very few people or corporations are interested in investing in a business that's losing money. A profitable business attracts more buyers than unprofitable one.
- What are the business assets? Talk to your accountant and look through tax filings to determine the business assets. Assets may include tangible items such as computer, inventory, property and the like, but they may also include intellectual property, trademarks and patents. All assets need to be included in the inventory to determine a fair selling price.
- Do you want to continue on in some capacity with the firm? This may not apply to everyone selling a business, but in some cases prior owners are retained by the new owners as consultants to help keep daily operations running smoothly. Think about what it might be like to work at a company you've built from scratch but is now owned by someone else; can you live with that or will you feel restricted or unhappy?
Steps to Selling a Business
The following are meant as general guidelines on how to sell a business. Specific questions should be brought to your business attorney and accountant.
Determine the Price
Pricing businesses is tricky. Most business experts recommend a formula using the SDE or Seller's Discretionary Earnings, multiplied by some factor. Calculating the SDE requires multiple calculations using past years' Profit and Loss statements. You may wish to have your business accountant work on this. After finding the SDE figure, that number is multiplied by a factor that depends on the industry and market value in the local area. A snack shop at a local baseball field that earns $20,000 SDE each year may be worth two times that much or four times that much depending on the business forecast, such as how many ballgames are expected to be played there next year and whether or not the local Little League teams intend to return to that field next year or move to a newer facility across town. As you can see in this simple example, the value of a business is dependant upon its earning potential, past history of profits, and future growth potential.
Business buyers are likely to have lots of questions. They may ask about equipment included in the sale, merchandise, sales history, personnel experience and much more. Gather the information together before listing the business for sale. If equipment such as restaurant equipment, point of sales systems, computer equipment, or manufacturing equipment is included, create a folder or dossier listing each piece, its age, manufacturer, repair and service history and the like. The more information you have already gathered to show a prospective buyer, the less likely you are to lose his interest if he has to wait for the information.
Spruce Up the Business
If you've ever sold a home, you know from experience that it has to be spotlessly clean and fresh looking to attract buyers. The same goes for a business. Clean, paint, polish and refurbish anything that looks old or shabby. You want the business to look fresh, new and enticing to a prospective buyer without sinking a lot of money into a renovation.
Advertise or List the Business for Sale
Once you are ready, you can advertise the business privately on sales websites or newspapers. Or locate a business broker in your state who can handle the transaction. Contact real estate agents to see if they handle commercial transactions too.
Close the Deal
Once you have an interested buyer, expect several rounds of negotiation over price and other factors. It's normal for a buyer to offer less than the sales price; don't get offended. Simply counter the offer with a compromise you think is fair and that you can live with.
Barbara Taylor, a business expert, in an article written for the New York Times, also recommends that sellers check the buyer's credentials and ability to pay prior to the final agreement. This ensures that buyers have the funds on hand or the ability to secure funds to purchase the business.
Have your lawyer draw up the final sales contract. Once you've agreed on the sale price and the terms of the contract, and your lawyer is satisfied your interests are protected, complete the sale, hand over the keys, and celebrate the successful sale of your business. Learning how to sell a business can be complicated, so seek out someone experienced in selling businesses if you have questions or need more assistance. The Small Business Administration's pages on selling a business also offer good general advice.