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What You Need to Know About Selling a Small Business
Start with this entrepreneur's guide to selling a small business as quickly and efficiently as possible.
You're ready to move on to the next venture. Start with this entrepreneur's guide to selling a small business as quickly and efficiently as possible.
Selling a small business
In 2018, there was a 4% increase in businesses sold from the previous year. The 2019 numbers are just coming in and it's clear this has been a banner year for business exits/sales.
The economy has been on a tear and business owners are cashing in on a market with active buyers and high price multiples. But don't believe that just because you have a business, and because you work really hard in that business, that you'll be able to sell your business quickly.
There are steps you need to take when selling a small business, and we want to share with you what they are. Keep reading our guide to learn how to sell your own business.
Figure Out Why You're Selling a Small Business
The first step to selling a small business is being able to clearly articulate why you want to sell. Most potential buyers will ask this question right off the bat.
Most business owners decide to sell for the following reasons:
Bored
Overworked
Retiring
Illness or death
Partner problems
Others decide to sell because their business isn't profitable and their soul has been accordingly crushed after years of slugging it out with nothing to show for it. Selling a struggling business is like trying to sell a rundown house with a crappy foundation and a frat house next door. It's harder to get a favorable transaction done and there are fewer buyers out there interested in dealing with the problems they'd be inheriting in a market with so many attractive deals for sale.
You're better off trying to fix any addressable problems before putting your business on the market if you can take the time to do it.
You Must Know The Real Value When Selling a Company
It's vital you know how much your company is actually worth in the eyes of a potential buyer. This will ensure you don't price it too low or too high.
Find a business broker to get a valuation. The broker will provide you with a detailed explanation of your business's worth based on real market comparable and professional experience.
A formal valuation can also help you back up your asking price. Most buyers will ask for the business to have a valuation done at some point in the process, so better to arm yourself with one before you start engaging prospects.
Prepare Documents
There are certain documents buyer's will need to take a look at regarding your business such as:
Financial statements
Tax returns (dating back three to four years)
List of equipment being sold with the business
A list of contacts of salespeople and suppliers
You should also include any relevant paperwork like your current lease. A buyer must understand exactly what he or she is getting if they choose to buy your business.
Find a Broker
Yes, you can sell a business without a broker but it's like selling a home without a broker. It's often more difficult, riskier, and leaves you vulnerable to making costly mistakes.
Selling your business tends to be a lengthy process. Being patient, taking your time, and being thorough will help you make smarter decisions.
Before choosing a broker, interview several before you choose which one to work with. A good broker will have a realistic approach. A bad broker will try to sell you a fantasy of what you can expect and it'll take longer for your business to sell it at all.
Put Your Business on the Market
Selling a small business doesn't have to be hard. You just need to surround yourself with the right team to help you find the right buyer. Use websites like BizNexus to match you with the right business intermediaries to help you sell your business on optimal terms at the right price.
Best of all, it's a free service. Click here to try it now.
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THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
What's Your Business's Market Value? How to Value a Company
Are you wondering what your business's market value is? Read this article to learn how to value a company fairly so you can sell fast and make a profit.
Are you wondering what your business's market value is? Read this article to learn how to value a company fairly so you can sell fast and make a profit.
How to value a company
You’re finally ready to sell the business you’ve worked so hard on. The first step of the process is valuing how much your company is worth.
But if you’re new to selling a business, likely you won’t have a clue where to start. Thankfully, there are several ways to work out the market value of your company.
Ultimately, your business is worth whatever you decide it’s worth. But you can make your estimation using various ways to value the company and can choose a mix that reflects your final thoughts.
Keep reading to learn how to value a company.
Work out the Value of the Assets
If you’re wondering how to value a business, the first thing you should do is add up the value of everything the company owns. This includes all the equipment and inventory. Then, you’ll need to remove any debts or liabilities.
After all, a buyer would need to purchase all the same stuff if they were starting the business from scratch, so the company at the very least is worth the replacement cost.
While this doesn’t provide an efficient whole evaluation of a business, it’s a great starting point for understanding a business’s worth. Your final balance sheet will offer a good indication of the value of your business’s assets.
Remember that the company is probably worth a lot more than its assets though. Consider how much revenue and earnings the company pulls in.
Base It on Revenue
This leads us to another method on how to value a company. You can base the value of a company on its revenue.
How much does the company make in annual sales? Work that out and determine, using a stockbroker or a business broker, how much a company within your niche may be worth for a level of sales. For example, it may typically be worth about three times sales.
Explore Beyond Financial Formulas
It’s important not to just base your assessment of your company’s value on figures. For example, maybe the location of your business is extremely sought-after?
Always consider the value of your business based on other factors too, such as geographical location.
How to Value a Company for New Sellers
When considering how to value a company, these are some of the best methods to start with. However, one of the best ways to assist with the process is to consider professional help.
Here at Biznexus, we can help. We help match business owners with the best business intermediaries to help you sell your company for great value, on optimal terms.
The service is free for business owners, and we aim to help improve entrepreneurs’ chances of having a positive experience of selling their business. To learn more about how we can help, check out our website.
BizNexus -Learn More From Our YouTube Playlist:
PREPARING TO EXIT YOUR COMPANY
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
How to use seller financing to buy a business in 2019
There are various ways to go about funding the purchase of a business. A strategic option would be to negotiate seller’s financing with the business seller to alleviate the burden of paying full price for the business upfront. In the U.S., about 60-90% of business sales involve seller financing. Before going through with the purchase, you need to thoroughly vet the business. Because owners rarely finance 100% of the purchase price, you might also need to find other sources of funding, such as a bank loan.
There are various ways to go about funding the purchase of a business. A strategic option would be to negotiate seller financing with the business seller to alleviate the burden of paying full price for the business upfront. Jessica Fialkovich, President of Transworld Business Advisers - Rocky Mountain explains how this works, particularly for small businesses.
In the U.S., about 60-90% of business sales involve seller financing. Before going through with the purchase, you need to thoroughly vet the business. Because owners rarely finance 100% of the purchase price, you might also need to find other sources of funding, such as a bank loan.
Once your business is up and running successfully, you might want to refinance so you are free and clear of the seller.
You can get up to $5,000,000 with an SBA loan, but you'll need a good credit score (680 or better), collateral, and at least a 10% down payment.
If you default, the owner might want to retain the power to take back the business within 60 days of you missing payment.
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