Whether you’ve decided to retire or simply want to try something new, it’s finally time to sell your business and move on. Emphasis on “move on.”
You want to sell your business quickly, but a business sale doesn’t happen overnight. Let’s cover a few ways you can help speed up the process.
How Do I Sell My Small Business?
Let’s have a look at the steps you should take to sell a small business quickly. If you consider your business a bit more scaled up than “small,” you should still be able to implement these steps with some success.
Some of the following steps you will need to do in sequence. You can work on others concurrently. As you would expect, most of the work comes at the beginning of the process.
Step One: Set Key Targets
Before you even think about listing your business, there are two things that you need to decide:
- Set a deadline for the sale. Do you want to sell next month or next year? Don’t be too ambitious because the process could take some time.
- How much do you want to sell your business for? Make sure your figure is realistic by looking into what similar businesses have sold for.
Step Two: Prepare Your Business For Sale
When you sell a car or a house, you make it as attractive as possible to a potential buyer. The same goes for your business.
- Your premises should be clean and tidy. First impressions matter. This also applies to online businesses. Your website should be neat, orderly, and user-friendly.
- List all the assets that are included in the sale price and those that are not. If you are selling your bar and the potential buyer likes the artwork on your walls, is it included in the price?
- Get your paperwork in order. We’ll talk more about this when we talk about due diligence in step seven.
- Prepare a description of the business. What does it do? How do you run it? Who are the customers? What is special about it?
- Stress the strengths of your business and the potential it offers.
Think of it this way. When you sell your flat, do you think a messy room, outdated electrical system, and water-damaged ceiling tiles from three years ago will work in your favour? No. If you want the most from your business sale, stage it, remodel it—clean up your mess.
Step Three: What Will Your Financial Liabilities Be?
Hold up, there! You cannot take the money and run. You have to pay off any outstanding bills and, of course, pay tax. Any profit that you make on the sale will be subject to capital gains tax. You can hire an accountant to help you calculate your liability.
You should factor these unavoidable expenses into the sale price.
Step Four: Get Your Timing Right
Is your business seasonal? Perhaps you sell a lot more ice cream in the summer than you do in the winter. In that case, it may be best for you to wait until the end of the season before you sell. This way, you make more profits, and a prospective buyer will see your business at its best.
Step Five: Valuation
Clearly, you want to get the best possible price for your business. But is your valuation realistic? Check what similar businesses are selling for. If you are using a broker, they will help you set a reasonable price.
You don’t want to set a price that is too high. This will put buyers off. At the same time, you should set a price that allows you a little room to negotiate. A quick sale might mean lowering the initial price. However, you don’t want to end up losing money.
Step Six: Publicity
Who may be interested in buying your business? How do you reach potential buyers? Here are some possible avenues to explore to find the perfect buyer:
- Employees: These people know your business already and might be interested in buying it. If an employee is interested, you might consider offering them a purchase plan that allows them to pay in instalments.
- Internet: Some sites will list your business for sale and charge a fee for the service. But you can use the web to advertise privately to your contacts and through your own website.
- Trade Publications: These might help you find a buyer, especially if your business is specialized.
- Social Media: Facebook and Instagram, amongst others, reach a lot of people.
- Competitors: You might find that a competitor would be interested in extending its business by buying yours.
Step Seven: Be Prepared For Due Diligence
You can look at due diligence as the equivalent of taking a car for a test drive. Due diligence is the appraisal that a potential buyer will perform on your business after making an offer. They will list the tangible and intangible assets and liabilities of your business and evaluate its potential.
You should make sure that everything is in order and above board. The buyer is making sure that they are buying exactly what you said was for sale. They will probably pay special attention to your cash flow, so don’t misrepresent this. The financial statements that you show your potential buyer should cover the previous three years at a minimum.
Step Eight: Using A Broker
There are advantages to using a professional to handle the sale of your business.
A broker acts as an experienced middleman with access to the market where you are selling your business. Although a broker may charge as much as 10% of the sale price as commission, you might find that they can get you a better price than you had hoped for. A brokerage service may pay for itself, so it is an option worth considering.
Step Nine: Be Ready To Negotiate
We’ve already mentioned negotiating, but it bears repeating. You want the highest price you can get; the buyer wants to pay as little as possible. If you have established a fair market price for your business, the buyer might accept it without question.
Set an initial price that, although not excessive, allows you to lower it a little. You might not need to come down if there is a lot of interest in buying your business. However, if there are few potential buyers, you might want to drop your price to get a quick sale.
Step Ten: Finalize The Sale
You’ve secured a buyer and agreed on a price. The buyer has completed the due diligence process and is happy. Now, you need to do some paperwork.
You need to draw up purchase and sale agreements. If your property is under a lease, you need to transfer it to the buyer. And prepare a bill of sale, transferring your business’s assets to the buyer.
You will also need to inform Her Majesty’s Revenue and Customs that you have stopped trading on such a date. This will allow them to calculate your tax liability and de-register the business.
You might have to consider a few other things for a speedy and safe selling process.
A Non-Compete Agreement
Your buyer may not want you to open a new business around the corner and take all their customers with you. Therefore, they might insist that you sign a non-compete agreement. This document is your promise to not enter into competition with your old business for an agreed period of time.
Such a document may specify that you cannot consult another company that competes with your old company.
Basically, your buyer wants you to retire gracefully from the scene and get out of the way.
Protect Your Information
You have reached a late stage in negotiations with a potential buyer. They have performed due diligence, and then, for some reason, the sale falls through.
This potential buyer is now in possession of information that you don’t want to be made public. This information may be useful to the competition and reveal more about your operation than you want them to know.
You should insist that any potential buyer signs a legally binding non-disclosure agreement.
Honesty Is The Best Policy
No business is perfect. Do not attempt to sell yours as if it were. If you have had problems tell your potential buyer about them.
You may have a list of customers who are frequent late-payers. You may have an unreliable supplier. One employee might be great at their job but have a terrible attitude.
Your buyer needs to know about these things. They are buying your business in good faith. They will want to know how you have dealt with these problems. Then they can make up their own mind about their future policy.
Don’t Sell To The First Bidder…
…unless you have to.
You’re in a rush, but you don’t want to rush to the point of missing out on the best deal. If you have a successful business in a highly competitive environment, there will be a lot of interest in buying it. Set a minimum price and take it from there.
How Long Does It Take To Sell A Small Business?
Once you’ve decided to sell your business, you probably want to do so as quickly as possible. How quickly your business will sell depends on various factors and some old-fashioned luck. Nevertheless, in the UK, the process usually takes around nine months.
Using A Broker To Sell Your Business
Most brokers are reliable professionals who you can trust. However, there are some unscrupulous ones out there. You should be wary of a broker who charges you nothing in advance but offers you a contract that obliges you to pay large fees in the future, even if they do not sell your business.
One problem with this? A broker may set the fees based on an overvaluation. So, you could find yourself obliged to pay 10% of a valuation that was far higher than the final sale price. Pay attention to these other red flags:
- A broker who assures you that they already have lots of clients eager to buy your business. This is highly unlikely.
- A broker who overvalues your business. They might persuade you that your business is worth more than you imagined, but really they are just eager to sign you up as a client.
- A broker who wants a large fee in advance.
Some of these operators have no real interest in selling your business. Rather, they are interested in how much they can make from you.
How Do I Choose An Honest Professional Broker?
Again, the majority of brokers are trustworthy professionals. If you have decided to use a broker, you should look for a broker who is a member of a professional association such as iTABB. This is the UK professional body for Transaction Advisers and Business Brokers. They offer information, assistance and have a directory of members.
Their website states, “Our directory is the only location in the UK that brings together all the expertise and professional help you need to successfully sell your business, raise capital, find and complete an acquisition or execute an equity event. We expect our members to uphold the highest standards.
As a service to our members, we do not charge the public for assistance with finding them the right business broker or other intermediary to match their specific needs.”
Additionally, Research your broker and find out as much as you can from their other clients. You can also ask other business owners for a referral.
A decent broker can guide you through the process of selling your business.
How Do I Sell My Small Business Without A Broker?
You do not need a broker to sell your business. It might be that you know lots of people who are eager to buy your business. Say your beachfront restaurant is in an enviable position and has a solid reputation. In this fortunate case, simply putting a sign in your window might well bring potential buyers to your door.
However, most businesses are not in this happy position. Even if your business is specialized and may take some effort to find a buyer, you might still be confident that you can save a broker’s fees and sell it yourself. This will take a lot of time and effort.
You can negotiate the sales process with little professional help. But I would only recommend this if you have the time, patience, and willpower necessary.
What Are The Pitfalls Of Selling My Business?
Try to avoid these common errors.
1 – You’re Not Ready
Gather any relevant information you need so that it’s at your fingertips. Your documentation should be up to date and complete.
2 – You’re Suffering from Sale Fatigue
If the sale is taking a long time or you have seen potential buyers come and go, you might get fed up with the whole process. Try to stay enthusiastic. If you are bored, you will make mistakes. These stressful mistakes can cost you a lot of money.
3 – You’re Not Running the Business
You shouldn’t stop work once you have decided to sell your business. Your customers and staff deserve to keep working. And, if you let your business slide, its overall value will drop.
4 – You Forget to Vet Buyers
An eager potential buyer arrives and asks lots of questions about your business. They want to know about your sales, your customers, your staff, and your cash flow. You need to be a little careful, though. They might not be interested in buying your business at all. They might just be looking for information.
You can’t do much about how they deal with the information that you have freely disclosed. Nevertheless, you can stop them from sharing it with a third party by insisting they sign a non-disclosure agreement.
5 – You’re Taking Too Much On
You might have decided that you don’t need a broker to sell your business. All is well and good, but you will certainly need the help of an accountant and a solicitor. Don’t try to do too much yourself, especially if you are not qualified in a particular area.
6 – You’re Announcing Too Quickly
How soon do you want others to know that you have decided to sell? You don’t want to lose the confidence of your customers, staff, and suppliers.
Choosing the right time to tell others you are in the process of selling your business is difficult. They will find out soon enough, but you don’t want them to find out from someone else.
How Do I Sell My Small Business Fast?
If you are well-prepared, you should be able to sell your business fairly quickly. However, don’t expect miracles—allow a minimum of nine months to complete the transaction.
A lot has to happen in the time between making your decision and closing the doors. It is a complicated process, and you should be ready to face the inevitable problems that will crop up. Don’t rush the process. Take your time and be meticulous in your preparation.
If you have decided to continue without a broker, be prepared to shoulder a lot of extra work. Yes, a broker may cost you a considerable amount of money, but it may be money well spent.