How to Sell Your Business: 5 Steps for Selling for The Best Price
Some business owners will eventually reach a point where it may be time to move on from their business. Whether that’s a business owner’s end goal when they first start, or they’re looking towards an exit strategy because priorities change, knowing how to sell your business will help you get the best business valuation for your sale.
This article will give you an outline that includes six steps to follow to prepare your business for sale, and eventually sell your business. We’ve tried to create a guide that can apply to as many businesses as possible. However, every business is unique. There are some considerations that we might not note in this article, so it’s important to take your time when it comes to each step to ensure you don’t miss anything.
When to Sell Your Business
Numerous signs point to the reasons to sell your business. So, let’s break it down:
1. It stresses you out
Entrepreneurship can be exciting for many people. However, not everyone can handle the emotional rollercoaster that comes along with owning a business. If you find that you’re having more frustrating days than happy days, you may choose to sell your business to eliminate the stress.
2. The business outgrew you
Believe it or not, a business can grow beyond your skillset. If you find that your small company has grown into a massive enterprise, you may feel it’s grown beyond your control. In some cases, founders feel like they don’t recognize their own companies anymore. Some entrepreneurs are best suited for the startup stage, while others are better at managing large-scale businesses. You may decide to sell your business if this happens to you.
3. A new opportunity arises
Sometimes a window of opportunity opens up that you just can’t pass up. Maybe you’ve been offered your dream job and want to consider going back into the corporate world. Or you’ve stumbled on another profitable business that’s ripe for investment. When that happens, you may decide that your existing business may be better run by someone who has more time to devote to your customers. In this case, you might sell your business to pursue this new and exciting opportunity.
4. Someone wants to buy your business
Selling a business is hard. But there are times when people build super cool brands that people are excited to own. If you’ve recently had someone offer to buy your company, you should consider selling your business as it’s a rare but wonderful opportunity. If the price is right, selling a business can be a profitable exit strategy so you can pursue other passions or business endeavors.
How Much to Sell Your Business For
The first step to selling your business is to determine its value. The business valuation is essential because it will determine your approach to the sale of your business. When you know how much you can sell your business for, it will help you decide whether to set an asking price or to field offers and take the best one.
If you have a desired sales figure in mind, you’ll need to determine whether your business can sell for that amount, and if not, what you can do to help bolster the value of your business.
If you’re simply unsure what your business is worth, knowing the value of your business can ensure you’re not over-asking or under-asking, which can scare off cautious buyers. Understanding your business’ worth shows confidence when you’re going for the sale. The last thing you want to do is set a price too high and get no offers, or set a price too low and make buyers suspicious.
Finally, knowing the value of your business ensures you make the most money from your sale, that’s possible. Nobody wants to sell their business and eventually realize they could have sold it for a much higher price.
To determine the value of your business, we recommend using a business valuation tool. This tool will give you a rough starting point. It’s important to remember that no tool can give you a 100% accurate appraisal of your business. Ultimately, what your business is worth is what people would be willing to pay for it.
From there, you can use different business valuation methods to come up with a number that’s closer to the actual worth of a business. Some use a 20x multiple of their monthly profit to come up with a number. Others look at the sale of other similar businesses to determine a fair sale price. Determine the best for your business and unique situation, and go from there. Don’t forget to factor in other things that increase the value of your business, such as the domain, backlinks, assets, supplier and influencer relations, and even money already invested in the business.
Pro tip: If you’re running an online eCommerce business, you can look at the sale price of businesses on Exchange, a marketplace to buy and sell businesses just like yours.
How to Sell Your Business: Five Steps for Selling A Business
1. Organize your finances
When you sell your business, you’ll want to have your finances in order. Complete transparency and honesty are crucial if you want your sale and transition of ownership to run smoothly and be uneventful.
If you can’t easily report on sales or expenses for a period, it will be difficult to convince buyers your business is worth buying, and even more challenging to get the full value out of the sale of your business. That’s why it’s so important to have proper bookkeeping, documentation, and data early on in your business. Most people would much rather buy from an organized business owner than one with gaps in their data or finances.
If you have to, start doing some retroactive bookkeeping and try to figure out profit and growth since the start of your business, if you don’t have that data readily available. You’ll find when you’re selling your business and communicating with sellers that one of the most common questions will be around profit and loss.
Profit isn’t everything when it comes to the valuation and successful sale of a business, so don’t be shy about being transparent when it comes to ups and downs in profit. Other things can make your business appealing to buyers, as we mentioned earlier, so be honest and upfront here.
2. Prepare all your assets, products, logins, and documentation for transfer
The next step is to make an inventory of everything you will be selling, including in the sale of your business, and prepare it for transfer to the new owner. You’ll want to do this ahead of listing and selling the business for a few reasons.
The first is that when you make a complete inventory of everything you will be selling, you’ll have a better idea of the worth of the business. There are many things to consider here. Here’s a list of some of the assets you’ll want to prepare for a transfer to the new owner, as well as include in the sale of the business;
- Customer/email lists
- Logins to software, software licenses
- Product inventory
- Supplier contact information
- Influencer and journalist contact information
- Tools, manufacturing equipment, raw materials
- Documentation (contracts, procedures, roadmap, marketing plans, etc.)
- Domains, websites, social media accounts
Preparing these things for transfer may mean creating a list of everything you will need to send to the new business owner, and writing some step-by-step instructions to get this transferred to the new owner. So, you’ll need to change passwords, send logins, or ship details.
3. Determine where to sell Your business
Now that you’ve followed the above steps, it’s time to list your business for sale. The question now is where to list. You could work with a business broker who specializes in identifying potential buyers in your industry. Leading brokers are contacted by hundreds of buyers each month and can generate significant interest in your business through their buyer network. Plus, they can pre-screen buyers to ensure they are financially capable of acquiring the company. Brokers typically list a business on their website where prospective buyers can view its assets and sale price. However, they charge a certain percentage of the sale price as a commission. The benefit of using a broker is that they know the market and can usually find buyers quickly.
It can also be a good idea to look for buyers in your locality. There might be companies a couple of miles away from you who want to expand in your region. There might be migrants that want to run a business without starting from scratch. An established business offers them value in the sense that they can launch quickly without building everything from the ground up. Reach out to your local Rotary Club and Chamber of Commerce to connect you with people looking to invest in businesses.
How to sell your business online
One of the best ways to get your business in front of potential buyers is to list it on an online business-buy-and-sell marketplace. There are plenty of platforms to sell your business, but Exchange Marketplace makes it easy and secure to sell your business online. The exchange has partnered with Escrow to ensure that the payment, listing, and transfer process is straightforward and painless.
Even if you choose not to list your business on Exchange, the following process will likely be similar.
- The first step to listing your business for sale on Exchange is to install the Exchange Marketplace app on your Shopify store. It can be found directly on Exchange. This app will take traffic and sales data from your store to streamline the process of listing your business for sale on Exchange. It also helps verify the data, making it easier for buyers to trust the listing.
- The next step is to create a listing on Exchange for your business. One of the more important sections you’ll want to add to your listing is the reason or reasons for selling your business. This insight will give buyers more comfort. Nobody wants to buy a business with defects or problems. However, if your business has those, you’ll also want to include that, and also include possible solutions for the buyer to implement.
- It’s also critical to add a brief description of yourself, include your social media account details, and feature screenshots that show your business’s performance in your listing. This should help build trust with prospective buyers and will help them make an informed decision.
- After submitting your listing, it will go through a review process. Once your review is approved, you can publish your listing. Your business is now for sale!
4. Field offers and communicates with potential buyers
From here, you will have to field offers and questions from various buyers. If you find yourself getting many of the same types of questions, you may want to revise your listing to include the answer to these questions.
Another essential part of this step is to be patient. It can take a long time to sell a business for the amount you’re seeking. If you’re lucky, you can sell within a few days, but most companies take longer to sell a business than that.
You’ll likely get many more people who are more curious than serious. In addition, even serious buyers may go back and forth with you for a long time as they do their due diligence. Of course, you’ll want to do your due diligence, too. Ensure the person you’re speaking to is sincerely interested and is trustworthy. Don’t be afraid to ask questions, such as if they purchased a business before and what interests them about your company.
You’ll want to sell your business to the right person. Selling to the wrong person may lead to more issues and headaches down the road after the sale. The person you sell to should be capable of running your business without your help. Of course, you’ll want to offer some support during the transition period, but ultimately, you don’t want to ruin someone else’s business part-time for free.
5. Close the sale
The last step you’ll take when you sell your business is closing the sale. Once you reach a point with a buyer where you’re both happy with the price and the terms of the sale, it’s time to close the sale. Within Exchange, you’ll need to accept the offer a buyer sends you. This accepted offer will create an Escrow transaction in your Exchange app, which will notify the buyer to accept the terms and submit payment to the Escrow.
Once the buyer makes a payment, it’s your turn to send everything we listed earlier over to the new business owner.
How To Sell Your Business To a Competitor
Getting an offer to buy the business from a competitor can put you in a state of confusion. While competitors can be attractive clients because they are often well-capitalized and experienced in running a business, there’s always a risk that they might not treat current customers and employees the same way as you do. Plus, some competitors are only interested in acquiring your trade secrets and customer information – selling your business to them can negatively impact your brand’s reputation and even result in costly legal proceedings. Hence, it’s best to proceed with caution when approached by a competitor for a business sale. Here are some tips to eliminate risks when selling your business to a competitor.
Research the competitor
Find out why the competitor is interested in purchasing your business. What is their long-term plan? How are they going to take the business forward? Will they provide you with performance reports in the first few months? You want to ensure the deal is in line with what you desire for your company.
Get an NDA (Non-Disclosure Agreement)
Selling your business requires you to provide a lot of sensitive information to a potential buyer. An NDA will make sure a competitor cannot use this information to gain a competitive edge should the deal fall through.
Don’t rush it
Don’t let the competitor pressure you. Take your time to negotiate and perform due diligence. It’s your business at stake. We also recommend keeping supplier lists, personnel names, and detailed financial documents to yourself until a purchase agreement is in place. Some details like customer lists can even be provided post-sale.
How to Sell Your Business Quickly
There are situations when a business owner wants to sell their company quickly. This could be due to the accumulation of debt or another venture they want to move on to. While the average business takes 6-12 months to sell, there are ways to speed up the process. Here’s how you can sell your business fast:
Get the word out that you’re selling your business in trade magazines, publications, and other media relevant to your industry. Join business-related social media groups and advertise your business for sale there, as well. Additionally, create a sale listing on an online marketplace to cast a wide net for your offer. When you want to sell your business quickly, don’t rely on just one channel to attract potential buyers.
Provide information in advance
When you list the business for sale, you will get the same questions from multiple buyers repeatedly. Rather than answering everyone, consider making an FAQ page where you answer the popular questions about how your business works and the reason why you’re selling it. This will help inform buyers what they are going to invest their money in and what they’ll need to do to run the business should they buy it. Informed buyers make faster decisions.
Make the transition easier
Smart business owners keep their business running in a way that will allow the next owner to fill their shoes smoothly. If you want the same for you, start building systems that will make it easier for a buyer to take over your company. For example, you could write playbooks on how to deal with employees, build customer profiles to help them understand the target audience, and automate marketing processes like social media and email marketing. All of this will increase the buyer’s confidence about closing the deal.
How to Sell Your Business Summary
The journey from starting a business to selling a business can be an exciting one. You’ve learned so much about how to build something of your own using your own blood, sweat, and tears. The business skills you develop from building and running your business can be used long after your business has been sold. So whether you’re moving towards a new business or embarking on a new path altogether, we wish you the best.