Selling a business is a complex process. It’s time-consuming, stressful and can seem overwhelming. If you want the sale of your small business to be a smooth transition, there are some things you need to consider. The following are some tips for preparing your business for sale.
- Determine the value of your business: The value of a business is determined by cash flow, earnings (before interest/taxes/depreciation/amortization), industry trends, market demand and location. The asking price of your business needs to be comparable to the industry median in order to attract suitable buyers and open negotiations. It’s important to get a business assessment from an accredited business appraiser as a third-party valuation adds credibility to your asking price.
- Hire legal experts: There are many legal documents required when selling a small business including an asset purchase agreement, the legal contract for the sale, a letter of intent and documents proving ownership of patents/trademarks and other intellectual property. Hire the necessary financial, legal, tax and business advising professionals to ensure the process goes as smoothly as possible. This guarantees that you are fully protected with a strong contract. Choose experts that specialize in dealing with businesses for sale.
- Engage a business broker: While a lawyer structures the deal, a business broker helps you find a buyer. They will give you market visibility, contact potential buyers on your behalf, submit paperwork correctly, secure a favourable price, and fulfill any licensing and permitting requirements. Keep regular contact with them to discuss sale expectations, contracts, advertising, and other concerns. Brokers charge a commission of 5 to 10% of the sale price.
- Prepare your paperwork: Potential buyers will want to see a profit and loss statement for the last 3 years, a current balance sheet, a cash flow statement, business tax returns for the last 3 years, a copy of the lease, any insurance policies, an executive summary of the business, supplier and distributor contracts, an equipment listing, your policy and procedures manual and employment agreements. Ensure a smooth process by taking the time to get these documents organized. Your professional chartered accountant can assist you with this task.
- Pre-qualify your buyers: Many deals fall through because sellers enter transactions with buyers who are unable to secure financing. Ask your buyer what kind and size of business they desire, how soon they wish to purchase, how long they’ve been looking for a business, what business experience they have, how this experience will help run your business and what type of financing they have in place. Have the potential buyer provide a letter from their financial institution or accountant that shows they have the funds required to purchase your business.
- Tidy up loose ends: Make good on all payments, late payments, defaults and promises. Have your professional chartered accountant audit your financial statements. Review crucial employment contracts. Have an intellectual property attorney review all of your business contracts.
Selling a small business is exciting! It also requires careful planning. Follow these tips to set yourself up for success, increase your chances of finding the right buyer, boost the sale price of your business and create a smooth transaction.
Need help preparing documents for the sale of your business? Need advice regarding the sale? Contact Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help you. Contact us for a complimentary consultation.