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A Guide To Selling Your Small Business

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If you are looking to sell your SME then you should be aware that it can be a complicated process and one that can take a lot of time. It’s vital that you carry out the proper ‘prep work’ in order to make the sales process easy and transparent and the prospect of buying your company more attractive to buyers. If you try to sell your business too quickly, you are unlikely to get full value for it, as you will not have fully prepared your company for sale. Let’s take a look at the steps you will need to take before selling your business…

Choosing a Broker
If you plan on selling your small business then you will need to decide whether you will use the services of a broker or whether you will sell it yourself. You can choose to sell your company yourself, but there are some definite advantages to using a broker. Specialist business brokers can offer a wide range of assistance and, most importantly, will give a professional presentation of the business. Brokers will also be able to present financial information effectively and price your business accurately. They are skilled in finding buyers, working with them and, eventually, closing deals. Additionally, they will be up to speed on the legal requirements when it comes to selling a business.

Keep Running Your Company
Many people keen to sell their business will try to make changes in order to make their business a more attractive proposition for buyers. However, and as most advisers will tell you, this is not a great idea and it pays to continue running your company as if you were keeping hold of it. Changes that are made simply because you want to sell your business will be obvious to prospective buyers and will only deter them from making you an offer.

This is such an important point to remember when selling your business, as prospective buyers will want to know about sales, profits and margins, as well as expectations and forecast growth. If your books aren’t looking too healthy, then try to identify exceptional expenditure in your accounts. Perhaps relocation costs were high, or maybe a major client terminated a contract. Identifying these costs could give a fairer picture of your company’s long-term profitability and make it more sale-able.

Having a strategy when selling your business is of paramount importance. Discuss this with your management team and establish the best ways to implement this strategy. You may want to think about how you can cut costs and increase profits, as it’s important that the business is sold at a time when it looks most profitable. You should also consider factors such as your management structure (does it make sense?) as well as your IT system (is it up to date?). Making changes to certain operational issues such as these could be the difference between selling your company or leaving it on the shelf a little longer.

Legal Housekeeping
Making sure your legal affairs are in order before selling your business is essential, and this is where hiring a broker to undertake the sale process can be useful. You will need to ensure that your contracts are all legally watertight. This refers to contracts with suppliers, clients and employees, but also your property lease or deeds. You will also want to consult your lawyer, who can check any contracts for legal issues. You will need to ensure that your tax affairs are all in order, as any buyer will add clauses to the contract which will make you liable for any costs that arise after the sale is complete.

Deciding to sell your small business is one of the biggest decisions you’ll ever have to make, and in the current financial climate, you need to ensure that you get full value for it. This means preparing your business for sale and taking the appropriate steps before putting it on the market.

About the author: Alexandra Johnson blogs about small business advice, investment opportunities and business growth. She works with Christie+Co as a consultant.

Comments on this entry are closed.

  • Phyllis Moore

    Thank you for this overviewof selling a business. I like how you have highlighted issues and circumstances that owners may face and what they should do. It seems to me that process of selling a business could be overwhelming. Probably for that reason, if they are able, owners should consider getting a reputable business broker. It seems to me it would be worthwhile since brokers would have connections and inside knowledge that owners from their vantage point wouldn’t have. In fact, this makes me very curious to know more about business brokers. Perhaps that could be a separate article?

    • Thanks for your comments Phyllis. You’re right in that lots of business owners don’t know where to start when it comes to selling a business. Valuation can be a tough issue. Also preparing your business for sale requires quite a lot of guidance. I’d be happy to provide more insight into the business brokerage process.

  • Sharon

    Very interesting article! I enjoyed your key points when planning to sell your business. I agree that a broker is probably a good choice when navigating a sale. For many people, buying/selling a home is daunting enough. Selling a small business would probably seem impossible.
    Also, considering whatever personal reasons for selling, the owner probably is overwhelmed by stress already. All the more reason to let a pro handle the transactions.
    I also like the point you made regarding the financials. That might be the perfect time to sit down with a representative at their bank to review accounts and numbers. Oftentimes, owners are so attached personally that they don’t always see the ‘forest for the trees.’ Having a financial adviser review the data with them might open their eyes to possibilities for improvement.
    Thanks again for the great information!

  • oivas

    Hello Alexandra,

    Thank you for your lovely post. It indeed does cover all the areas that needs to be planned and ironed out for takeover.

    Also, I just thought that it would also help the owner of the small business to ensure that he or she plans a year or two to stay under the payrolls of the taking over company. This is so important because many owners want to sell and move on, however, the buying company requires them to stay for some time, at least. This has to be planned as well.

    Great points, though. Thanks!

  • oivas

    Also, I couldn’t help but notice the fact that last minute changes to the business is not recommended. That is a good point. In fact, there are businesses which actually look at a three to four year selling horizon and then plan all the IT and process investments. They then invest and run the business for a year at least, wherein the changes are handled and then they sell the business.

    Any other change done in a lesser time frame will only confuse the existing process and may lead to drop in efficiency temporarily. So, small business owners need to keep that in mind.

  • Selling a business is definitely a business in itself. I have seen how people try to get around the proper process and then end up with a headache and tremendous losses. I saw how friends of mine sold a pet business to another friend, not sure exactly all the legal matters they did but the second friend really struggled to make ends meat to bring the business up to par as the previous owners had.

    They in turn simply wanted to get rid of the business and made some kind of word-of-mouth agreement with a third individual who was going to do some construction for them. The end result was the third individual lost everything in a fire, my second friend got nothing because it was not legally done and the initial owners lost several thousand because my second friend could not pay the remainder.

    It would have been nice to have found your article back then.