10-Step-Guide-to-Selling-Small-Business

The 10 Step Guide To Selling Your Small Business

You dreamed it, you built it, and one day it will be time to cash out. Learn how to make your business attractive to future buyers and what to expect throughout the selling process.

1. It’s Never Too Early for a Consultation

Whether you’re still going strong or starting to get the first thoughts of retiring, it’s never too early to start preparing. Establish good habits early and make it easy for yourself on the way out. This is your chance to lay down a blueprint and strategically work towards the finish line instead of being left scrambling in the event of a death, illness, or someone getting burned out and quitting.

The goal is to get a better understanding of how things operate so we can determine best practices until it’s time to pass the baton.

  • How involved are you? What are your roles?
  • How many employees? What are their positions and salaries?
  • What products and/or services do you offer? Which generate the most income? What is the ballpark annual revenue?
  • What makes your company unique?

From here, we determine how appealing your company may be at the moment and set up an action plan for areas of improvement.

Royal Business Consultants has experience in a variety of industries including B2B, home services, cleaning, and restoration business to name a few. We help you identify what buyers are looking for in your specific industry.

These sessions are completely confidential and none of the company information or financial details will be shared – with competitors or employees. Also, there’s no pressure or obligations. Having an organized seller is great for both of us, so we have no problem helping you start your exit on the right foot.

2. Get the Books in Order

Money is the heart of your company. Buyers not only want to see that there’s income, they want to see exactly where it’s going. The more documentation you have the better. Having a profit statement and budget is extra ammo (and always a good idea), but here are some things you will definitely need:

  • 3 years of tax documents
    • Pro Tip: Don’t get too clever with the books or include family vehicles/properties, for example.
  • Proof of revenue stream (year-to-date is ideal)
    • Pro Tip: Provide exact numbers on quantity sold and revenue generated for each product. If one client has a bulk of the purchases, that could raise a red flag. Show how diverse your client base is.
  • Employee count, salaries, and benefits
    • Pro Tip: Make sure to include what you pay yourself.
  • Value of equipment, technology, and inventory
    • Pro Tip: If you own the building, the property can be negotiated as well.

3. Plan Your Exit

Your business is your baby. All the early morning and late nights, the emotional and financial investments, the love you have for your team. The operation can’t be handed over to just anyone. Having a timeframe in mind not only helps you plan when to sell, but also how long of a transition you are willing to provide. Here’s what you need to be asking yourself:

  • How soon do I want to sell?
    • Pro Tip: Closing can take anywhere from six months to over a year.. Work that time into your exit strategy.
  • Am I willing to work as a consultant after the sale? How long? If not, who will fill the void?
    • Pro Tip: Promoting a rock star employee is an option if you’re trying to minimize involvement. They can also make great buyers.

4. Boost Sales

This one applies if time and budget permit, but is highly recommended if you can pull it off. Businesses that are on the upswing are much more desirable than those that are stagnant. Launch marketing campaigns and promotions to create a quick bump in the numbers. Even if it’s not for very long, buyers will know your company has the systems needed for growth.

5. Get a Valuation from a Business Broker

This is where all the planning and prepping comes to fruition. Your Business Broker will analyze your numbers versus the recent sales of similar companies to come up with a fair market value – a price tag for your business. How do you feel about that number? Sell now? Regroup and sell later? If the market isn’t in your favor, we’ll tell you.

Being a commission-based service, selling at the highest price possible is in both of our best interests. We’ll always fight for your dollars. That being said, the asking price has to fall within a realm of justification to make sure we don’t miss opportunities. Price too high and it’s out of the reach of qualified buyers at lower price points (who may have loved to invest in your business). Price too low and more prominent buyers may not see your true value.

On average, even with the cost of commission, small businesses that use a broker net more money and sell in less time than those who attempt to sell on their own.

Royal Business Consultants are here to walk you through your options. Let us use our years of market experience, negotiations, and connections to get you top dollar for your operation.

6. Find Buyers

Now that we have a winning price, it’s time to attract the right people. Know that the company name, address, and other identifying info is not given until the next phase of the transaction. A one-page hot sheet overviewing basic company info is generated for marketing material. From there, we use a combination of targeted campaigns and our rolodex to create a hand-picked audience.

Targeting on social media and search engines allows us to strategically showcase your company to experienced entrepreneurs in the appropriate wealth bracket.

  • Facebook
  • LinkedIn
  • Google

Our network and hundreds of affiliated sites allow us to broadcast even further.

  • www.bizbuysell.com
  • www.businessesforsale.com
  • www.businessbroker.net

7. Qualify Buyers

It’s not just about checking their buying power, it’s about finding the right fit. There’s a certain personality that needs to be in place once you’re gone. Get as much feel as you can for their experience, expertise, and leadership style. Social media and Google can be great tools for learning more about potential buyers.

And of course, get them all pre-approved financially. Money talks. We only present offers after knowing there’s enough money in the bank or what loan they will be using.

8. Meet and Get an Offer

Working with a few interested parties is not only fair game, it’s ideal. Here’s where you get a chance to feel everyone out. A Non-Disclosure Agreement will be in place so there’s no need to hold back. Honesty is the best policy for both buyer and seller. They need to learn about how you work, you need to see if they will fit into the culture.

Parties should be prepared for the following:

Seller

  • Overview of the systems and operations that keep the business efficient and profitable
  • Areas of improvement and ideas on how to do so
  • Key employees and duration of consultation after purchase

Buyer

  • What changes do they plan on making? One might be a dealbreaker or need to be negotiated.
  • What is needed to fully review and analyze production?
    • Pro Tip: Offers are about more than just price. Watch out for terms or loans that may cause delays or be less likely to close.

9. Review and Negotiate

Once a Letter of Intent is signed, both sides need to be reviewed. It’s time to show your cards and let lawyers and accountants work it out from there. The length of this process depends on how thorough your info is and how much data they want to look over. Once the LOI is signed by both parties, the execution of the purchase agreement will typically occur in the next 30 – 60 days. Most of the due diligence by the buyer will be completed over this time frame.

Buyers are typically looking to:

  • Verify ownership info
  • Confirm database size and activity
  • Determine employee count and costs
  • Examine sales records and inventory levels
  • Read contracts with vendors, employees, and contractors

Depending on what everyone finds, negotiations may take place. You’ll have our team and years of experience in your corner to help you establish new terms, juggle multiple offers, and understand how reasonable requests are. Let’s make this a win all around.

10. Closing

Mission accomplished. Congrats on making it to the finish line!  This is what to expect before, during, and after the closing date:

  • You and your attorney should review the Purchase Agreement beforehand to make sure everything regarding the building, equipment, and intellectual property is accurate.
  • Closings can be virtual or in-person.
  • Be prepared to sign a Non-Disclosure Agreement.
  • Consulting will end after a predetermined duration of time or until certain terms or metrics are achieved.

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Typically, one of the first questions we get asked by business owners is “What’s my business worth? There are many different variables (tangible and intangible) that are considered when calculating the listing price including current financial performance, overall business model, profit margin ratios, profitability trends, growth potential, and competitive landscape to name a few.

RBC will analyze your financial statements and recast the P&L to include any addbacks in order to arrive at the seller’s discretionary earnings (SDE). The SDE is used in conjunction with an earnings multiplier to arrive at a valuation range.