Small business owners who wish to exit the market may find selling rather challenging. Selling a small business often requires the experience and expertise of Melbourne valuation professionals, brokers, accountants, and/or an attorney. Each of these professionals has distinct contributions to the process. As a small business owner looking to sell your business, you need a comprehensive guide that'll walk you through the process. Read on to find as much information as you'd need.
How To Sell Your Small Business
As with all transactions, knowing how to approach the process can greatly impact your profit and how fast you sell. To make the process easy, follow the steps below.
Step 1: Define the reason for selling
Knowing why you are selling your small business can give a better perspective regarding how much you sell, how fast you sell, and what needs to be done. There are many reasons why a small business owner may choose to sell, some of these include;
- Small business maturity. In this case, the small business has reached a maturing point where the founder wishes to exit.
- Retirement. Business owners may choose to retire themselves by selling off their small businesses.
- Health challenges or death. Small business owners may choose to sell during health crises or death.
- Boredom. Some business owners choose to sell because they are no longer excited about the business and its prospects.
- Demanding. Small business owners may choose to sell when their businesses become too demanding.
The decision to sell may affect how profitable the business is. For example, a small business owner may not make as much as they'd like when faced with a medical emergency that requires enormous funds. In such situations, the business owner will be looking to sell fast and not necessarily at the highest profit margin.
Step 2: Business Sale Timing
When it comes to selling your small business, you need to have a plan and work towards it. A good rule of thumb is to draft your exit strategy at least two years ahead of the sale. Once your exit strategy is in place, you can begin working on ticking each aspect of the strategy to strengthen your business and command more money for it. Most business owners who wish to sell begin by boosting their production and sales, improving their financial records to make the business more profitable and desirable, and setting up a business structure that allows the business to function in their absence.
Step 3: Business Valuation
Business owners may have sentimental value attached to their small business and may tend to demand more for it. Professional business valuation is a good way to understand how much your business is worth and how much to sell it. Hiring a professional business valuer gives you an in-depth understanding of what your business is worth and can guide you through the sale process. The appraiser or business valuer will also issue a report or recommendation, if necessary, about the factors that may have affected your business' value.
Step 4: Decide whether to use a broker
Many business owners may choose to handle the sale process on their own. This option saves you money and ensures that you are directly contacting the buyer. However, this approach may be limited as you need to invest time and energy into finding the right buyer. If you are in a highly sought-after industry, the chances of pulling the sale off without a broker are high.
On the other hand, using a broker connects you to a network of investors and entrepreneurs interested in acquiring your business. Working with a broker reduces the process's stress and saves time. There is a likelihood that you may sell faster when working with a broker.
Before deciding whether to use a broker or not, consider the pros and cons of both options and how much time or stress you are willing to undertake. If you choose to work with a broker, look for a reputable brokerage company and discuss your expectations, their fees and commissions, and other important information.
Step 5: Documentation
Documentation is an important part of selling your business. The buyer wants to be sure that they are buying a legitimate and profitable business. To prove your business is legitimate, you need to prepare your financial documents, tax returns, and a list of your business' assets and liabilities. You also need to list all your business contacts and business contracts relating to supplies and sales transactions, accounts, etc.
Ensure that the potential buyer is presented with everything that shows you're ready to hand over the business. You can also create an executive summary of how your business is run, the hierarchy, and the process that has ensured success to date. Doing this can increase the buyer's confidence in the deal.
Step 6: Find the right buyer
Finding a buyer for your small business can be tricky. You need a buyer that'll pay top dollar and pay fast too. One of the best ways to do this is to attract them to your business's success. Setting an exit plan with at least two years exit period allows you to start advertising and signalling to the right investors. During this time, court the attention of as many investors, entrepreneurs, and potential buyers as possible. Stay in contact with them and discuss the possible offers on the table. Provide information about your business to justify the asking price and negotiate favourably.
If the buyer plans to finance the sale, work out the agreement's details to the last dollar to ensure guaranteed payments when due. You can also contact your lawyer to go through the sales contract for possible conditions that may affect you in the future. If you're happy with the money and everything else, complete the paperwork and transfer the business to its new owners.
You can do many things with the proceeds of your small business sale. You can retire permanently or invest in another business. Whatever you decide, always remember the importance of a business valuation exercise, whether as a seller or buyer. To learn more about Melbourne business valuations and how it can help you, visit https://www.businessvaluationmelbourne.net.au