If you have spent years building a business then you will most likely come to a point where you decide to sell your company to a third party. There are a number of reasons why an entrepreneur makes the decision to part ways with the business that they have dedicated their careers towards creating. For many business people, common reasons for selling a venture include retirement, wanting to move on to another venture, or sickness. As such, you should carefully consider everything that needs to be done when you place your business on the market for sale.
Foremost, you are going to want to determine what a buyer is going to be willing to pay you for your venture. For most people, the concept of business valuation is extremely difficult. As such, we strongly recommend that you work closely with a business appraiser that can effectively provide you with an understanding of what your business is worth. When a business valuation expert reviews your company they are going to look at the earnings of the business, the value of the tangible assets on your balance sheet, and what comparable businesses have sold for in the past. Although it is extremely expensive to go through this evaluation, it is an imperative part of the business selling process.
After you have determined the free market value of your business, you are going to want to think about how you can market your business for sale. In many instance, it may be in your best interest to hire a business broker that can introduce potential buyers for your company. However, business brokering firms typically charge a fee equal to 10% of the total amount of the sale if they are successful in obtaining a buyer for your business. As such, you may want to review many websites that are on the Internet that will allow you to list your company for sale to the general public.
Additionally, prior to listing your business for sale, you should work closely with your CPA and tax attorney to determine the best way to sell your small business. In many instances these professionals will inform you that the best tax strategy will be to sell the assets of the company rather than the stock of the business. However, each business sale transaction is unique. Only a qualified and licensed professional can assist you in making the determination of how the business can be sold to a third party.
One of the things that you should also incorporate into your thinking as it pertains to selling your business is that you may be required to stay with the business for six months to one year as the new owner transitions after the transaction. Among small businesses, it is a common clause within a sale contract that the previous business owner is available to introduce customers to the new owner. The new owner will also want you to work closely with existing employees so that they can understand how the business will change once you sell the business to a different entrepreneur.
Prior to selling your business, you are going to want to have all of the appropriate documentation in place so that a potential buyer can understand your firm very quickly. These documents include the previous three years of tax returns for your business, your business valuation, and other metrics from which a buyer can render a decision as to whether or not to purchase your company.
In closing, it is extremely important for you to understand every facet of how to sell your business to a third party. You are going to be required to have a substantial number of business professionals working with you in order to complete this transition including your CPA, an attorney, and a business valuation expect. However, from the sale of your business, you can expect a substantial return on investment if you have developed a highly profitable venture.