Selling a business can depend on various elements, such as the economy, industry changes, and politics. As a result, it may be difficult to determine the best time and value to sell in today's market.
However, with some planning and foresight, you can maximize the value when selling a business, notwithstanding your business type.
To get a great return on your investment and sell your business for the highest price, you must follow the best practices. Here is a list our Glendale business sales attorneys have compiled of some of the best steps to take when selling your company.
Get a Proper Valuation of Your Business
Before putting your business on the market, it's crucial to have a proper valuation done by a professional such as a certified business broker. This will enable you to accurately assess your business's worth and help guide your pricing strategy.
This is also important for determining the fair market value of your business and setting a realistic asking price for a prospective buyer. This will not only bring in serious buyers, but it can also help you avoid losing money by setting the price too low or not getting enough offers by setting the price too high.
It is generally believed that a business is worth more if it has steady, consistent cash flow and a solid track record of profitability. So, use this time before listing to improve the financial health of your business by reducing expenses and increasing revenue.
Another thing you can do as a business owner to enhance the value of your business is to diversify income streams and expand into new markets or industries. This not only shows potential buyers that your business is adaptable and agile, but also reduces the risk of relying too heavily on one source of revenue.
Finally, consider the value added by your business's unique qualities or competitive advantages. This could include patented technology, a strong brand reputation, valuable industry connections, or a skilled and experienced team.
You must note that professional valuation - by business brokers, business appraisers, or any valuation expert - is not a one-time event.
Depending on your industry or the nature of your business, a business appraiser may want to conduct updates every year or two, especially in the lead-up to selling your business. This usually includes the company income, business structure, customer bases, business transactions, client reviews, business valuation, or other complex deals the business may have.
So, for a wide variety of reasons, it is important to reevaluate the value of your business periodically, especially as you implement strategies to improve its worth before selling.
Improve Your Financial Records and Profitability
Having clean, organized, and up-to-date financial records is essential for potential buyers to assess your business's profitability and stability accurately. This is usually a must-do for any business sale as it helps determine the value and potential for future earnings.
You will agree that no one wants to buy a business with messy or incomplete financial records.
So, take the time before listing your business to clean up and update all of your financial statements or documents. This includes income statements, balance sheets, cash flow statements, tax returns, and contracts with clients or vendors. This will make it easier for strategic buyers to see the financial health of your business and help expedite the due diligence process.
Related Content: Common Mistakes to Avoid When Selling a Business
It is vital to mention that potential acquirers would be interested in accessing the health or stability of your business by understanding tax consequences, business history, market niche, third-party valuation, business debt, current assets, and future projections, where applicable.
So, you need to get your house into one organized piece!
In addition to having solid financial records, it's essential to improve your business's profitability before listing it for sale. You can also improve the overall profitability of your business by reducing expenses by streamlining processes, cutting unnecessary costs, and finding new ways to bring in more income.
To be clear, strategic buyers will be more interested in a business that is profitable, has a history of steady cash flow, and has grown steadily over time than in a business that is always struggling to make ends meet.
Before selling your business, a good rule of thumb is to talk to a financial professional or consultant about how to improve its financial health. For example, an accounting expert can help determine the best methods for reducing expenses or increasing revenues to improve profitability
Get Your Paperwork in Order
Before you put your business on the market, you must have all the legal paperwork and good financial records. This includes any contracts, licenses, outstanding invoices, permits, intellectual property documents (like trade secrets), and other legal agreements related to your business.
As a business owner, you must also have all key employee or employment contracts, non-compete agreements, non-disclosure agreements, and any other HR documents. This is important to ensure that the current employees have a smooth transition and to avoid any legal problems that could arise during or after the sale.
Having all your paperwork in order helps you find qualified buyers because it shows that your business is organized and ready to be sold, and it speeds up the due diligence process.
So, before you put your business up for sale, ensure all of your legal documents are up-to-date and in line with the laws and rules.
It's also a good idea to consult with a lawyer or other legal professional to ensure everything is in order.
Negotiate the Sale Price and Terms
Once you have a potential buyer interested in purchasing your business, the next step is to negotiate the sale or purchase price and terms during the sale process. According to Forbes, the most important piece of negotiation is clearly understanding your bottom line and what you are willing to accept for sale.
While having a desired or target price in mind is necessary, be open to negotiating with the buyer. Think about their offer and make a counteroffer if you need to. Take into account things like the current state of the market, how profitable it is, and the value of your business.
Along with the sale price, it's important to negotiate the terms of the deal, like how payments will be made if there will be any contingencies or other conditions, and when the deal will be finalized. This would also include talking about obligations or agreements after the sale, like non-compete clauses and consulting services.
It is vital that you do all these things during the sale process, as they can significantly impact the overall success and profitability of your business sale.
Techniques to Help You Negotiate Selling Prices and Terms
If you are not sure where to start when negotiating the sale price and terms of your business, here are five techniques that may help:
- Do your research and clearly understand your business's current market conditions and value, so you don’t get taken advantage of or sell for so little. This will give you a solid basis for negotiating with the buyer.
- Have a target purchase price in mind, but be open to negotiating and considering the buyer's offer.
- Don't rush through the negotiation process; take your time to thoroughly discuss and negotiate the price and terms.
- Communicate your needs, expectations, and any specific conditions or contingencies you may have.
- Put all agreed-upon terms in writing to protect yourself and ensure a smooth transition for both parties in the sale process.
The key is to be ready, sure of yourself, and willing to negotiate to reach a fair and good deal for both parties.
Procure the Contracts by Getting Lawyers Involved
Lastly, it's important to have a lawyer write and look over contracts (like a purchase agreement) before you sell your business. This helps protect both parties during the transaction process and ensures that all agreed-upon terms are clearly outlined and legally binding.
A competent lawyer can also give helpful advice during the negotiation process and help make sure that everything follows the laws and rules that apply.
So, before you close the deal on selling your business, you should use contracts and lawyers to ensure the sale goes smoothly without any problems or stress.
Generally, advisory firms with legal counsel can offer legal advice on the following key issues that are necessary to consider during the sale of a business:
- Confidentiality Agreement
- Asset Purchase Agreement
- Buy-Sell Agreement
- Agreement into Escrow
- Consulting Agreements
- Corporate Governance Documents
- Contract Law
- Sales Contract
- Amortization of Business Assets
- Business Books
- Business Competitors
- Transaction Documents
Their expertise, as a matter of fact, can also come in handy during the negotiations and due diligence process. For example, during the deal-making process, there would need to be a security agreement that explains how the company's assets will be protected in case the buyer doesn't pay.
Learn More: Why You Should Get a Lawyer When Selling Your Business
Bottom Line
Overall, selling your business can be a time-consuming and complicated process. But by taking the necessary steps and precautions, you can improve your chances of a successful sale and maximize the value of your business.
As a business entity, there is no greater joy and satisfaction than knowing that all of your hard work, time, and effort in building and growing your business has paid off. So take the time to properly prepare for the sale and make it successful.
Keep in mind that having a legal professional and negotiating and clearly outlining the sale price and terms can ensure your interest and rights are protected throughout the entire sales process.
Need help with selling your business?
Contact a business law firm for expert legal guidance and advice. At Monahan Law, we believe in establishing long-term and personal relationships with our clients to provide the best results possible that will suit your needs.
