Business Valuation Blog | Understanding Buying / Selling a Company

What do you need to know about how to sell a business?

Posted by Business Valuation Specialists LLC on Apr 11, 2018 4:03:00 PM

When you started your business, you probably didn't think about what would happen when you were ready to sell. It's easy to get caught up in the daily operations of your business and your long-term goals. But when it's time to look at an exit strategy and consider selling, do you know how to sell a business? Here's some practical advice on how to start the process.

What do you need to know about how to sell a business?

When you're first considering selling your business, you should start by taking a look at your motives. As with most business transactions, you'll want to sell while the market is stable or growing to ensure you get a better price and faster sale. However, it's also important to start the process far enough in advance to ensure the best possible sale at the end of the process. Generally speaking, it takes between two and four years to prepare a business for sale.

One of the first steps you should always take in preparing a business for sale is having a business valuation performed. A business valuation looks at the entirety of your business operations as well as outside factors, such as market conditions and competitors. It provides you with a baseline value for your business, but it's the intel that you can gain that is truly valuable. The level of detail that is reached makes it a great tool for improving your company's financial picture. If it shows problems with your production line, you now know where it can be improved. If it shows issues with bad debts in your accounts receivable department, you can pursue different strategies to close out those accounts successfully.

Once you've started to make improvements, you can start to decide how to pursue the sale of the business. You have a couple options available, either selling it through a broker or going it on your own. A broker will take some portion of the sale price, typically a commission on the sale, but already has a good idea of how the process works, which outlets will provide you with the best outcomes and how to move the process along when it's needed. At the same time, you can focus on getting your business ready for sale rather than trying to sell it yourself. However, if you have the free time or may know prospective buyers in your field, you may want to consider handling the process on your own to avoid having to pay fees to the agent or broker.

However, one area where you won't want to skimp is in document preparation. With the many different laws and regulations varying from location to location and industry to industry, hiring an attorney to handle the paperwork ensures that your interests are protected and that no mistakes are made in the process.

Knowing how to sell a business isn't the first thing on every entrepreneur's to-do list, but it is an important piece of knowledge to have. By knowing when it's time to get out, you can make a more successful ending for your ownership in your company and receive a better asking price during negotiations with a prospective new owner. Even if you're not ready to sell yet, considering the steps involved can help ensure your business is growing at its best potential.

Topics: selling a business, how to sell a business