When looking to sell a business, be it a small to a medium-sized entity, hiring an intermediary for the process isn’t always the best option.
Intermediaries, also known as business transfer agents, or business brokers, are people who sell businesses on behalf of the owner. The role is similar to a real estate agent, except the rates charged are considerably higher.
What do you do if it’s just a small business, or is the buyer an employee, friend or family member? Is there a need to pay up to 10% commission to someone to handle the sale?
We are about to find out. We’ll go over the key steps to selling a business – yourself!
You’ll find some significant actionable steps here to help guide you through the process. And as a bonus, we’ve got great tips. Ones that you might not have otherwise thought of during this process.
So, sit back and grab a notepad, or better yet, bookmark this page because you’re going to want to reference this a few times during your journey.
And we are happy to help be the guide on this adventure. Let’s jump right into those action steps you should consider for selling your business.
10 Steps To Sell Your Business
- Organize All Processes
- Document All Processes
- Research Similar Business Sales
- Valuate The Business
- Setup A Business Sale Portfolio
- Decide Financial Options For Transaction (Talk To An Attorney)
- Choose Advertising Channels
- Receive Offers
- Manage Sale
- Sale Follow Up
Having sold a business in the past, I know that the business’s organization will best achieve your goals. And I also understand that this process may take some time.
There will likely be some hard work required to get the business ready for sale. Just like selling a house, unless it’s a new house no one has lived in, it will need cleaning up. Never attempt to sell a business ‘as-is’ if you don’t want to lose money.
Let’s dive into each of our action steps. These steps should go in rough order to facilitate efficiency. Therefore you won’t have to go back and do something twice.
The 10 Steps To Selling A Business by Owner Explained
Organize All Processes
A smooth transition from you to the new business owner should be a primary task of your preparation for sale.
Many small business sales include a consultation period where the existing business owner acts as a coach to the new business owner.
If you want to sell a business and eliminate some or all of the follow-up consultation, then organizing the existing business processes is an essential task to complete for a successful transition.
Take a long look at your business. Try to look at it from the eyes of one who has no experience in the industry.
Remember that there are likely many things you do within the business that you take for granted. These are things you may have done for years, simple processes that help make running the company more accessible.
Make several lists. Divide your companies operations into sections or categories. For example, your categories could be Marketing, Physical Sales, Services, Payables/Expenses, and more.
Take these categories and break them down further into sub-categories. Now take all the actions performed within each and list them in short, point form. There’s no need to write a book. We simply want to identify any possible scenarios taken for granted due to years of experience and document them.
Documentation is what this is all about, so let’s move into doing that very task.
Document All Processes
As mentioned, the first step is organizing the business processes. When you hand over a business to a new owner, or even before that when advertising the sale, having all the operations documented and in order is a key selling feature. Remember, the more comfortable you make it for the new owner, the more value a person will see in the sale.
There is a saying in business: “He/She with the best paperwork wins.”
When it comes to a buyer deciding between your business, its highly organized processes, or similar activity, but with less organization, do you think the buyer will choose?
Research Similar Business Sales
Speaking of similar businesses, it is vital to research what other companies in your industry are listed for after you have documented your business operations.
Take some time to investigate other businesses for sale. Even going as far as acting like a potential buyer to glean information is a wise idea (as long as you don’t lead people on, of course).
Find out what the other businesses’ sales prices are. Look at what kind of sales pitch or information they are offering to potential buyers.
Get a feel for how similar businesses present themselves for sale. Like selling products, you will want to try to do a better job than other companies at the presentation. An excellent introduction can be a crucial factor in closing a deal.
Valuate The Business
As you have recently investigated other similar businesses for sale, you should have a reasonably good idea of your business worth.
However, if there is any question about the business’s value, there are options to find out.
One of these options is to speak with a business broker. Now, I know you aren’t keen on hiring one, and that isn’t what the recommendation is here. Most intermediaries will talk to you about the business’s value as they attempt to sway you to use their services.
For this reason, if you know the most significant numbers like the value of assets, business revenue, and cash flow, then a simple few phone calls should be sufficient to get you the answers you seek.
Several things will affect the value of your company. A few examples are:
- Maturity of Company
- Market Conditions
- Past and Forecasted Earnings
- Assets & Liabilities
Each of these factors and more will play into determining the final value of your business. Once you have figured this out, then you can move onto the next stage.
Setup A Business Sale Portfolio
When an artist wants to sell their works, what do they do? They create a portfolio. Selling a business should be no different. Setting up a two-stage portfolio is a smart idea.
The Two-Stage Portfolio
When setting up a two-stage portfolio, there is one reason for keeping the two versions separate: safety.
As mentioned previously, you don’t want to admit too much information from the start. Just enough information should be shared to get the potential buyers to ‘bite the hook’ to help drive the sale’s close.
The first portfolio should feature things like:
- Revenue and asset numbers
- Location details with photographs
- Features of business that an owner would like
- Benefits of owning the business
- Financing options (if any offered)
Learn more in my article: How to sell your business idea to a company or investors
Sales Safety Tip
When you set up your sales package, remember never to give away any information that could be damaging. For example, never give up a client list until the deal completes.
The second portfolio is the serious buyers only portfolio. This one dives deep into the numbers and gives a more in-depth view of the business operations.
Again, don’t reveal things like client lists or other information that could be ‘stolen’ by a potential competitor posing as a buyer. It’s unfortunate, but this sort of thing happens all the time.
Learn more in my article: How to find a good business partner
Decide Financial Options For Transaction (Talk To An Attorney and CPA)
Unfortunately (and fortunately) it is now time to cough up some money and pay to have a lawyer consult and draw up contracts of sale.
The lawyer should take a quick look at your portfolios, to ensure everything is for your benefit.
Next, the decision making time about how the transaction will be allowed to transpire. What do I mean? Financing, that’s what.
Here is what to consider about the transaction. If you sell your business and the deal is to receive one big lump sum of money, then the taxes will most certainly be higher.
If financing is an option you can offer the new business owner, then the taxes reduce dramatically due to no significant initial payment.
Several different options may be available to you. You may be able to offer potential buyers these options, making the sale easier for the buyer and friendlier to your bottom line.
Speak with a lawyer about your particular situation and have them advise you on your best options.
Visit A CPA – Certified Public Accountant
The lawyer isn’t the only one you should be talking to about the sale of your business.
A CPA will be able to advise you about the sale as well. And the approach the CPA takes compared to the lawyer’s approach will be very different.
The accountant will be able to advise you on the tax situation. Naturally, like death, taxes are a nasty we all must face. The sale of your business is no exception, and one will need to pay the piper. Talk to your accountant to find out what you need to know about the taxes on the sale.
Choose Advertising Channels
If you happen to have a buyer in mind already, then you can skip this step. If you don’t have a buyer yet, then pay attention.
There are many places where one can advertise a business for sale. Websites such as the following are those where for either free or a small fee, one may post their business for sale.
6 Places To Sell A Business Online
BusinessesForSale.com – A website all about buying and selling businesses. This site is reminiscent of a store where you can browse the businesses for sale or post a business for sale. Franchises are welcome at this site also.
Flippa.com – this website boasts as being the #1 platform where online business is bought and sold.
ExitAdviser.com – A website that covers several topics relating to the sale of businesses. It also provides a marketplace for businesses to advertise their sale.
BizQuest.com – A site where you can post a business for sale.
Exchange.com – The Shopify marketplace to buy and sell e-commerce businesses.
BusinessBroker.net – Like other business sale marketplace sites, Business Broker allows people to post and sell businesses on their platform.
5 More Sales Channels
- Free & Paid Classifieds
- Social Media
- Local Newspapers
- Word of Mouth
Free & Paid Classifieds
There are all kinds of free, as well as paid, classified websites on the internet. We’ve all heard of Kijiji or Craigslist, right?
Taking advantage of free classifieds is a great way to try to find more potential buyers. However, it is wise not to do a significant transaction, like selling a business, through a classified ad.
A smart strategy is to offer the business for sale on one of the business sale websites mentioned earlier. Then, place free classified ads that direct people to the business sale page on the other website.
This method allows you to a)weed out people who are not serious buyers (they won’t go to the effort of following the trail), and b)allows for better control over managing the sales process.
Most business professionals are typically in associations with other business owners. With that in mind, it is likely you already have social media set up for yourself and your business.
Using the business’s and your own social media channels to reach out to friends and associations to announce your business’s sale may just find a buyer quickly for you.
It may be a powerful channel if you are a member of groups on social like LinkedIn, where other like-minded business owners may also reside.
Finding a potential buyer might just be easier than you think.
Similar to groups in social media, forums are an excellent way of targeting the correct audience. For example, forums for entrepreneurs and startups may be of use.
If your company does a lot of local business, then local newspapers and print media might be the solution for you to market your company’s sale.
Many local business owners utilize local print media to reach the local market, and you can take advantage of this as well.
Word of Mouth
The preferred method of selling a business is simply word of mouth. Perhaps you mention to a relative that you are thinking of selling and they indicate to a friend thinking of buying.
Sometimes a deal created by a word of mouth communication can be very efficient and save you a lot of time trying to market the sale.
How to drive word of mouth? Tell everyone you know and ask each to personally help promote the information regarding the sale of the company.
Naturally, once you have posted your business for sale on all the appropriate channels, it would be nice to get some offers to come in.
Depending on the business, the sales package or portfolio, the sales pitch, the revenue, cost, and demand for the company, and more factors, advertising and receiving leads may take some time.
Be patient and use each of the available channels to help drive a buying customer to your virtual doorstep.
That day finally arrives when a buyer is eager and willing to purchase the business.
The terms must be finalized, and the contract signed. This process should again involve the lawyer. And it is most likely that the buyer will likewise want to have a lawyer involved.
Beware any buyer who does not want a lawyer involved. It is likely there may be something shady going on. Always have a lawyer involved in the sale of your business for your protection.
Sale Follow Up
The deal is complete, the lawyer paid, and everything is as it should be. However, in most cases following the sale of a business, a previous owner is obligated to coach the new owner with the daily operations.
This stage is by no means mandatory, but in most cases, it is necessary. Don’t be surprised if the buyer demands some form of consultation from you to help the transition.
Remember, the more you can help the buyer ease into their new role as a business owner, the higher the value they will receive from the business’s purchase. And having a strong finish is the right way to go if you want to command the maximum price for your company’s sale.
When selling your business, the process might seem intimidating, but it isn’t that difficult. Simply follow the recommendations laid out here, and you should be in good shape.
Remember to make sure you consult both a lawyer and an accountant during the sales process to ensure that relations with the IRS are maintained favorably.
“Determining your Business’s Market Value” The Hartford – Business Owner’s Playbook, https://www.thehartford.com/business-insurance/strategy/selling-a-business/determining-market-value, Accessed Friday, August 14, 2020.
“Sale of a Business” Internal Revenue Service, Government of the United States., https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-a-business, Accessed Friday, August 14, 2020.
“Preparing to sell your business” J.P.Morgan Private Bank, https://privatebank.jpmorgan.com/gl/en/insights/planning/preparing-to-sell-your-business, Accessed Friday, August 14, 2020.
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.