Selling your business can be a lengthy process, there are a lot of moving parts. Despite the difficulties, thousands of small businesses are sold in the US every year. So, what’s the secret? How can you do the same, and make this a simple and fast process?
Every business sale is different. Some require you to hire external professionals, like a lawyer, an accountant, or tax advisor, while others don’t. The structure of your business, its finances, its valuation, and when you decide to sell all influence the final outcome for you, and the journey required to get there.
If you’re a small business founder who has decided it’s time to move on, you may find you’re too small for private equity or venture capital. But, finding a direct buyer is normally a time-consuming and costly process.
Plus, when the process of selling your business is over, you'll need to figure out how to manage the earnings.
Considering it typically take 6 to 11 months to sell a business, there’s no surprise a founder may decide to take some measures to streamline the process. Keep reading to see what you can do to speed things up.
“How do I know if now is a good time to sell my business?” You've invested so much time and effort into starting your small business–are you sure you want to sell it?
It's possible that you've taken on other work-related responsibilities, so you’re overworked and no longer have time to devote to this particular business. It could also be too demanding, costly, maybe you simply just want to take a break? Or, perhaps you have another great business idea you’d like to pursue.
Whatever your reason is for considering a sale, potential buyers will probably be curious as to why. However, if your company generates a stable profit, has a significant number of customers, or long-term contracts that guarantee its consistency in the future, buyers will consider it attractive regardless of your personal reasons.
Figure out if this is 100% what you want to do. If you’re in doubt, then it’s not the time to sell.
“What do I need to know to prepare my business for a sale?” Preparing your business to sell in advance will streamline the process and ensure you’re ready to act.
You’ll need to have everything in order when it comes to selling. This includes your accounting statements, organizational structure, and client base. Ensuring everything’s organized will also aid the buyer's transition and keep your customers happy.
This step is also key for identifying areas that could be improved in order to sell at a higher price.
Start by evaluating your processes. See if you can make any improvements to how you manage the inventory or the supply chain. Well-documented processes will make your business appealing to potential buyers, as their learning curve won’t be as steep.
Next, try to create a clear image of your finances—transparently communicating the performance of your business. Finances are one of the most important aspects potential buyers look to when considering a company.
"The most important aspect is getting your finances in order. Profitability is crucial. Showing that it's a super lean and automated operation because the buyers most likely won't want to be super actively involved, they want a business that essentially runs itself." — Rihards Piks, co-founder of Supliful.
Finally, review all your contracts with employees and clients. Make sure the new buyer won’t have trouble transferring them. Once everything is in check, you’re in a stronger position to sell.
OpenStore suggests: If your business is seasonal or you have been losing money for a few months, now is probably not the greatest time to sell for most buyers. For this reason, it's vital to evaluate where your company is right now, how much it's worth, and what you need to do to get the price you want.
If you feel the timing may not be right, another option is OpenStore. Our pricing engine is designed to accurately price businesses regardless of seasonality.
“How much is my company worth?” The truth is that the value of your company reflects its potential, not the costs and time you've put into it. It largely depends on how well it has performed in the past and how well it’s currently performing.
OpenStore sales tip: Try to avoid including your emotional investment in your business when considering your asking price–buyers don’t include this in their decision.
Calculate your net present value (NPV). This is the difference between the current value of income and current expenditures over a period. This figure should show potential buyers the profitability of your business.
The net present value is the outcome of computations performed to determine the current worth of a prospective series of cash flows. You can calculate NPV with the following equation:
NPV = [Value of future cash flows in today’s dollars] — [Current value of cash expenses]
The potential buyer will ask for the NPV to calculate the profitability of a particular investment based on the assumption that a dollar now is potentially worth more than a dollar in the future.
Other factors that will impact the value of your business include:
It’s essential to take all factors into consideration when deciding on the value of your company, yet aim to remain objective. Once you’ve got a number, consider double-checking it with a broker. Which leads us to our next point.
Brokers mediate most traditional business sales.
A broker is a person or an organization that works with a network of buyers. They communicate with their buyer contacts and present you with options if they believe your company is a good fit for the type of company buyers are looking for.
Finding a broker can be a long and exhausting process. You'll need an expert broker who will consider every factor and come up with a fair price for your company. Your business network should be a good source to find a good, certified broker. However, before choosing one, check their track record and stick to standard pricing terms.
“Some merchants spend six months or more fielding "interested" buyer calls, only to realize that people have just been "kicking the tires." — Frank Kosarek, OpenStore.
Brokers will also ask to see the detailed documents and plans that you gathered in preparation for the sale. This helps them match you with a buyer that’s interested in your business.
“It's not mandatory. We didn't have one. We had conversations with brokers, discussed their fees. Our industry wasn't a fit. So we did our own research, lists, and outreach. Everything worked out.”
Here you can also consider the emotional side of the sale—you need to find a broker who will understand your personal reasons for selling the company. They need to be compassionate throughout the process–you’ve put in a lot of time and effort into the business that you’re selling.
It’s up to you to determine how big of a deciding factor this aspect is when it comes to choosing a broker.
Finally, if you decide to hire a broker, keep in mind that there are some drawbacks. We spoke with Brian Bedard, Diligence Analyst at OpenStore, for more info on this:
“One major problem with selling through a broker is that fees can be 10-15% of your entire purchase price. No offer is guaranteed and, if you’re able to sell, the process traditionally takes months before receiving liquidity.”
While brokers take on the hassle of advertising your business, finding a buyer, and handling the legal work–they don’t do it for free. Consider whether this is something you’re OK with, and make your decision accordingly.
Your accounting records disclose your company's prospective worth to a buyer by documenting its history of success. We touched upon this previously, but here is where you really need to focus on the financials.
Your records should be reliable and precise. A potential buyer will be able to analyze your financials quicker if you provide correct and updated information. It's also critical that your records follow the relevant accounting guidelines so that your financial statements can be compared to those of other businesses.
Top tip: Ensure you make duplicates of these documents to send out to financially eligible purchasers–more than one at a time.
Here we are, the moment that all of this preparation has been leading to. There are several options you can consider when you need to find a buyer for your business:
Consider all offers for your business and give some room for negotiation to make sure you get a deal you’re happy with.
Top tip: Make sure all agreements are formalized in writing. To secure your information, prospective buyers should sign a nondisclosure agreement.
Now that you’ve sold your business, it’s time to look at what’s next. Now’s the moment to make a financial plan and understand tax implications that may arise as a result of your income.
Consult a financial adviser about investing your money and developing a retirement plan–you want to enjoy whatever comes next.
These seven steps are usually part of the typical process when you want to sell your business and could take 6+ months. For many business owners, this is just too long.
It doesn’t have to take this long, however. OpenStore gives you an offer in 24 hours and reduces the entire process to a few weeks. It only takes a few minutes to request an offer and doesn’t require all the preparations and housekeeping work of the traditional process we discussed in step two.
OpenStore’s reliable tech and experienced team can provide you with a fast and modern process that will empower you for the next chapter of your life.
“Unlike traditional sales processes, OpenStore takes a scientific approach to pricing businesses to ensure our offers are objective, fair, and can be guaranteed throughout closing. The custom-built pricing engine produces objective business valuations based on traditional and non-traditional metrics, such as Shopify sales data and the relationship that brands have built with customers.
What’s more, OpenStore seeks to grow each brand and retain the brand name. Founders can see the brands they bootstrapped and built grow further, and rest easy knowing that OpenStore won’t sell their company for a quick profit.” — Trent Riggs, founding team at OpenStore
If you’re looking for a quick, safe, and reliable way to sell your business, get in touch with the OpenStore team today.