Business Exits: Selling a business

Everything you need to know about how to sell a business

    How do you sell your business when you’ve invested so much into it? It’s a tough question. Selling your business can be an emotional and tense business exit. You want to know you’re getting the best deal and you want the process to go smoothly for the buyer. After all, 47% of deals fail due to issues that are surfaced during the due diligence process. You don’t want to be one of that 47%. 

    With that in mind, we’re going to share with you everything you need to know about selling a business. You’ll learn how to sell a business quickly and for the best possible price. 

    Not sure about selling your business but looking for another way out? Head to our Types of Exit Strategies page to learn more. 

    Download the Business Exits checklist

    Follow this simple framework to start developing your business exit plan today.

    How to sell a business in 6 steps 

    1. Determine your goals

    Before selling a business, you need to ask yourself, what are your financial goals? What do you intend to do with the profits of the business sale? Do you have debts that need to be repaid? Defining the answers to these questions is an essential part of business exit planning.


    2. Get a business valuation

    You need to get an accurate picture of what your business is worth in order to set an asking price. There are a few ways to approach this, outlined below in the section how do you value a business to sell it.


    3. Prepare your documents

    For a smooth sale, you need all your material business information to be in order. Many small business owners underestimate what’s required and lose precious time (and even business value) by preparing their documents too late. Use the templated M&A: Company Sale/Exit Pathway to accelerate the process and ensure a high valuation.


    4. Find a business broker

    To use a broker, or not to use a broker - that is the question. In instances where you’re selling the business to a family member or trusted employee, you might choose to handle the sale privately, saving on brokerage fees. More on this later.

    Alternatively, your time might be better spent keeping the business running while your broker concentrates on getting you the best deal (and the best commission for them). 
     

    5. Liaise with buyers

    Tips for engaging with prospective buyers:
    • Get two to three potential buyers just in case the initial deal falters.
    • Stay in constant communication with them.
    • Do they pre-qualify for financing? If so, work out the details with an accountant or lawyer.
    • Put everything in writing.
    • Get potential buyers to sign NDAs.
    • Use a secure virtual data room for all dealings.


    6. Close the deal

    Allow your buyer 2-4 months to perform their due diligence, then contracts can be finalized and the transfer can begin.

    How do you value a business to sell it? 

    Here are five ways to value a business before selling it.

    1. SDE

    The first step in valuing a business is to gather its financial statements for the past three years. With this data in hand, you can work with an accountant to create a seller’s discretionary earnings (SDE) statement. This is the best route to take if the business is making a little bit of money.

    2. Assets

    Valuing a business based on its assets is the best route to take if the business is making no money.

    3. Price multiples

    ‘Price multiples’ establish the business’ future earning potential if it’s making a good amount of money.

    4. Comparables

    Look at what similar businesses are selling for in order to gauge the value of your own.

    5. Appraisal

    Finally, you can get a formal valuation from a professional appraiser. This will add credibility to your asking price.

    The next step is to work on improving that value by making your business an attractive and easy sale. Buyers want an easy transition into their new business, so having all your information in order could prove extremely valuable to them. 

    An attractive business ready for sale is one with a neat, organized package of all its material information.

    What to prepare when selling a business

    Our business sale checklist covers everything you need to prepare before selling a business. Below are some of the items included:
    • Executive summary 
    • Tax returns
    • Awards and publicity
    • List of employees
    • Marketing information 
    • Sales history
    • Intellectual property
    • Cash flow analysis
    • Expenses
    • Revenue documentation
    • Real estate information

    How to sell a business that is losing money

    How do you sell a struggling business? The thing about selling an unprofitable business is that you still have to make your company an attractive proposition for the buyer. In particular, you’re going to need to focus on:
    1. Settling any large debts
    2. Clearing outstanding litigation
    3. Highlighting reasons why buyers should take notice

    Regarding point number 3: Your business might be failing but perhaps you have some valuable assets to a particular buyer, like your customer base or URL, for example. Alternatively, a buyer might be interested in the idea of incorporating your business into their own, rather than considering it as a separate liability.

    How to sell a business quickly 

    A very quick way to sell your business is to offer it privately to someone with no up-front payment but a performance-based earnout instead. This might be a viable option if you’re selling to your business partner, a competitor, or a trusted contact in your network.

    The best advice we can give you for a quick sale process is to prepare well in advance of when you want to exit. However, if you’re selling a business in a hurry, Ansarada’s M&A: Company Sale/Exit Pathway is ideal.

    A digitized template for your business sale, it contains all the critical data points that ensure a company is healthy and prepared for sale. All you need to do is upload your documentation into the secure platform. Then, when it’s time to exit, all your information is structured and ready to transfer seamlessly for a swift execution.

    Get your business ready for sale

    Use our prebuilt checklist or get started on your free trial of the M&A Exit Pathway today.
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