6 step guide to sell your business

Before you sit down and start the actual selling process it’s a good idea to do some investigation. First and foremost observe the market to get an idea of what you are competing with. What is already for sale? What is the asking price, and how long have they been on the market for?

This will help you to start out the selling process with a realistic perspective, before starting a negotiation with a potential buyer.

1) Clean up

Be on top of the game from the beginning so you are prepared for anything that might come. Start out by organising and cleaning up in EVERYTHING. Get a clear view of areas potential for updates and consider fixing them; give the walls a fresh coat of paint, and get rid of annoying barriers, update operative systems and so forth. This will make your business more attractive and increase sale, and consequently increase the value as well. The next area to give a thorough cleaning is: YOUR FINANCIALS! You could consider an accountant, so you are sure to be able to present clean books, or simply just go through your papers with a magnifier, as you can be sure a potential buyer will ask for year-back results. Avoid things that stand out, as this will scare most buyers away. Spending some time preparing your business for the next steps will make the whole sale process a lot easier. Not least the next one.

2) Determine the value of your business

This is where you want to invest time and thought. You know the numbers, you kept records of investments, salary, tax and so forth and the cash flow speaks for itself. Do your math correctly. What else you need to consider, is these 4 things:

a) Goodwill: Reputation and loyal customer base. This is where you can raise the price above the “book value”.

Goodwill is in theory calculated by the formula: Goodwill = P – (A+L).

P = Purchase price of the business

A = Fair market value of assets

L = Fair market value of responsibilities

But in practice, Goodwill is much more complex. It is an organic matter, based on good relations with customers and employees, a solid brand name and in the end; also on what buyer is willing to pay above identifiable value. This is also where your skills as a seller are needed.

b) Potential growth – What is in the future for a new owner? Expansion? New trends? Consider the variables. You know this better than anyone, and you can give the best advice and most precise estimate about the future.

c) Value of inventory. It follows to know the price of a potential stock of goods when determining the price of your business, but what about the rest of the inventory? Perhaps you have invoices for most of you equipment, furniture etc., but maybe you need to do some research to determine the price on others. Perhaps you might even earn more in selling some inventory beforehand?

d) Consider a professional. For a set fee, a professional can review your business and the surrounding market. They will add the value of inventory, calculate the concurrence, and go through your books. If you are willing to pay for this, it is great to have a third party opinion, and will make a potential buyer feel safe, but is by no means necessary. If you need help to determine the value of your business from your earnings, take a look here: https://fitsmallbusiness.com/how-to-value-a-business/

3) Make it clear why you are selling.

You might find this less important, but you can be sure that a potential buyer will find it crucial to have this in the clear. Be prepared to answer this professionally, however private it might be.

4) Consider the exit strategy/handover.

a) Employees. If you have staff, you need to clarify if they are part of the sale. Do you have a manager, or other employees that have been part of the business for a long time, and are they willing to stay with a new owner? This is valuable information. A key employee that stays through a sale is an extremely valuable asset for a new owner and will therefore be an important part of your negotiation. It means a lot of help in the initial period of the takeover, and a lot of possible errors avoided. Employees are particularly important in a sale with a great amount of Goodwill.

b) You. Are you able and willing to be available for a new owner for an agreed amount of time? Even in the most clear cut sales, there will be occasions where your presence is needed. Make it uncomplicated and agree on this from the beginning. Be in control.

5) Describe your business

Now you are getting ready to actually put your business on the market. Create a nice long add, describing your business from all angles in a somewhat objective manner. Make people curious, yet show them you are a professional by stating facts. Consider adding your reason for selling, as this is often why interested buyers hesitate to make contact. Be sure to make it clear that you have nothing to hide. Photos are an extremely important part of attracting a potential buyer’s attention. If you are not great at taking pictures, get some help from someone who is. Create an atmosphere, or be ready when there is a good moment, make sure it’s clean and tidy, and if you have people in the picture -costumer or staff, make sure they smile! After you get people’s attention they will most likely want to see the business in real-life.

6) Keep your head cold – now it’s time to sell.

You’ve put up your listing and now you sit and wait for the first bids to come. Be careful with that! Continue business as usual, or even give it an extra push. Your business is far from being sold yet, and who knows if interested buyers will swing by to see the giraffe? It would be a shame to not show the full potential of your hard work, or even to have the sales dropping! Be prepared to get offers that won’t end out in a sale. A lot of people are just investigating the market, and others will try to negotiate to a limit where you are not prepared to go. Do not let that throw you off course, keep answering all inquiries and keep your head cold, trust your initial judgments, and wait a bit before considering major changes in the sale.