Selling your business isn’t an easy decision. But it can open up new opportunities that you would’ve otherwise overlooked or rejected.
This article will look at why you should sell your business and how to do it successfully.
Reasons to Sell Your Small Business
“Why are you selling your business?”
It’s a question that you’ll likely get from prospective buyers. Some may ask why you’re selling out of sheer curiosity, while others may use your answer to help with their decision.
Here are some of the reasons you might consider selling your business.
Explore New Opportunities
Selling your business is a great opportunity to invest in other ways that are more hands-off, freeing up your time for other ventures. Stocks are a popular investment choice, as you can grow your money over time. However, stocks can be difficult to navigate unless you have experience.
There are services out there that will help you understand the best investment options based on your financial goals. For example, check out this review of Motley Fool and its premium stock advisor.
Retirement
Many entrepreneurs build a business with the intent of selling it to fund their retirement. After years or even decades of hard work, they’re able to finally reap the financial rewards. These business owners have entered a phase of their lives where they can leave the workforce entirely.
When you decide to sell your business, keep some of that money for your children. Instead of giving monetary gifts to your children, give them the gift of an investment that will grow. You can do this by buying stocks or investing under a brokerage account for them.
Declining Profits
Revenues may decline for reasons beyond your control. If you feel your business has peaked in terms of profitability, then you may consider selling to limit your losses.
Just be aware that you may not be able to get the asking price you want. Buyers may see declining profits as a risky investment, and for a good reason. If they can’t turn the business around, they’ll likely lose their money.
Industry Changes
Significant industry changes could be another reason to sell your business. Examples of such shifts can include the introduction of new legislation or increased competition.
BlackBerry used to dominate the smartphone space, but as of 2016, it no longer designs and manufactures its own phones. The company has since shifted to developing security software for large enterprises.
Similarly, if your industry is undergoing major changes, selling your business can help you limit losses.
Personal Reasons
Running a business leaves little time for anything else. As such, personal reasons can be a valid deciding point for selling a business.
If your health is starting to take a toll, you may want to consider taking a step back. Other personal reasons can include taking care of a family member, going back to school, or moving to a new location.
5 Steps to Successfully Sell Your Business
Start planning to sell your business at least one to two years in advance. This will give you sufficient time to make the necessary preparations and maximize your asking price.
Follow these steps and you’ll find better success when it comes time to sell.
1. Prepare Your Financials
Numbers speak volumes. Prospective buyers will want to see your financial statements to determine whether your business is a profitable investment.
Prepare the following documents:
- Profit-and-loss statement: A profit-and-loss statement summarizes your company’s revenues, costs, and expenses over a period of time.
- Balance sheet: A balance sheet reports your company’s assets, liabilities, and equity capital.
- Cash flow statement: A cash flow statement summarizes how much money is entering and leaving your business.
Any mistakes or inconsistencies in these documents can turn potential buyers away. Consider working with an accounting firm to help you prepare and organize your financial statements.
2. Get a Business Valuation
Even if you already have a figure in mind of what your business is worth, it’s still a good idea to get a valuation. You don’t want to list the price too high or too low.
Bring in a third-party appraisal firm to conduct an independent valuation of your business. For a fixed price, an appraiser will draw up a detailed report with supporting documentation. The report that you receive from a business valuation will lend more credibility to your asking price.
3. Increase the Value of Your Business
Companies with strong revenues are more attractive to buyers. Find ways to improve the overall performance of your company. This will help you maximize the value of your business when it comes time to sell.
Ways to increase the value of your business include offering more products, improving your website, reducing overhead costs, and improving customer retention rates.
4. Automate Your Workflows
New buyers will want their takeover of operations to go as smoothly as possible. If your business still relies on manual processes to get things done, buyers may reconsider their offer.
Using software to automate business workflows can be a great selling point. Examples of workflows you can automate include payroll processing, customer onboarding, and bookkeeping.
5. Hire a Broker
There are two options to consider when selling your business — do it yourself or hire a broker.
Selling your business yourself saves money on brokerage fees. You might consider this option if you’re selling to a trusted family member or a partner.
But in other situations, it’s best to work with a broker who can set up the sale and negotiate terms with potential buyers. Business brokers earn more commission on bigger transactions, so they’ll work hard to get the highest price.
When searching for a business broker, look for someone who has experience in your industry. Seek referrals from your business network.
Conclusion
Many business owners decide to sell their companies for different reasons. Some want to move on to other ventures, while others want to retire altogether. No matter your reasons for selling, it’s important that you start preparations as early as possible.
