Selling a Small Business: Step-by-step Guide

Such a phenomenon as selling a business today happens quite often. The owner comes to the idea “I want to sell my business” for a number of reasons: he decided to change the type of activity or niche in the market, and sometimes the reason is the unprofitability of production. And here the question arises – where and how to find a suitable buyer? This article on selling a small business will answer this and other questions.

Steps to selling a small business

Reasons for selling

Reason number 1. No profit

One of the most common reasons for selling a business is its low financial profitability. 80% of small business owners seek to “get rid” of a business that does not generate income but consistently requires financial and other expenses. The situation is aggravated by over-credit and other possible debts acquired at the start.

Reason number 2. Lack of development

Business can bring a small but stable income. However, if the company has no growth prospects and no potential for further advancement, many entrepreneurs think about how to sell your small businesses. The inability to scale and expand often leads to a drop in interest in the project.

Reason number 3. Starting a new business

For some entrepreneurs, each new project is just a step in the process of continuous development. Having built a successful business, they lose interest in it. This challenge is accepted, and this problem is solved. The stage comes when you need to move on.

Reason number 4. Part of the strategy

In big business, transactions for the sale of developed projects are not uncommon – annually about 70% of business project sale and purchase agreements are carried out for the purpose of further consolidation and diversification of enterprises.

Determine the value of your company

In truth, there are many methods for estimating the value of a small business. It is unrealistic to provide you with a complete and detailed analysis of all methods. Therefore, we have identified several options with which you can accurately make an assessment. These methods can be used both separately and in combination with each other. So, the methods of small business valuation are:

– Replacement cost method. In this case, the cost of starting a company from scratch is calculated. All indicators are taken into account: construction, establishing its place in the market, creating a customer base, establishing contacts with suppliers, recruiting its own staff, etc. After calculating how much it is necessary to invest in a company that is being opened from scratch, a discount (or discount) is determined from the amount received earlier (usually about 20 to 30 percent). This is done in order to justify the asking price. 

– The book value method. This method is considered the simplest. The valuation of small business is carried out using the balance sheet data, that is, the value of all assets owned by the company is revalued, the depreciation of non-current assets is taken into account, the value of the company’s liabilities is clarified, and then the clarified amount of liabilities is deducted from the amount of the clarified value of all assets. 

– Discounted cash flow method. This method is based on the assessment of the company’s financial performance, i.e., first of all, on the assessment of its gross cash flows, expenses and costs that allow obtaining these flows. Usually, when we say “cash flows”, we mean the net profit of the company (net means with taxes and interest paid), which is increased by the value of depreciation deductions. 

Clean up your small business financials.

The main purpose of a company financial audit is to identify the internal problems of the company so that they can be analyzed and evaluated. All of this will be used in making management decisions, and justifying these decisions, and will also be taken into account during preparation. This also applies to the development of the enterprise, measures within the framework of anti-crisis management will affect the process of buying and selling a business, will affect the formation and sale of a block of shares or shares in the enterprise, may become a factor of influence in attracting borrowed funds (investments).

Prepare an exit strategy in advance

Developing an exit strategy will help business owners decide whether to pursue short, medium, or long-term income generation projects.

If a person intends to leave the business within the next few months, they can focus on activities that will allow them to make money quickly. This includes things like monthly subscriptions, auto-renewals, and membership models that remain active until customers cancel. These revenue-generating projects require minimal effort but keep money flowing into your business.

Recruit a business broker

If you realize: I need help selling my business – you should definitely contact a business broker! Business brokers or business sales agents are specialists in finding investors and conducting transactions for the sale and purchase of companies and assets. The broker knows best how to sell a small business, quickly find a buyer and close the deal on mutually beneficial terms, as well as reduce the risks of the parties. For more information about this – see the website “Website closers”.

Finding a buyer and selling

How to interact with buyers, where they “live” and how to build a dialogue with them will depend on who will sell the business. A business broker will tell you where to sell a small business, because, as a rule, he already has a client base and knows where to look for a seller. 

The business sale cycle consists of two main stages:

Preliminary stage

You conclude a preliminary agreement, receive a deposit, and, having revealed all the cards of your business, give the buyer the opportunity to get acquainted with the company. This time can be spent studying documentation, communicating with employees or studying the business process, and working as a seller at the checkout. The average duration of the preliminary stage is 3-4 weeks.

The main stage

The moment of signing the business purchase and sale agreement. It takes a few minutes and you get the desired reward for your contribution to the company.

A broker can also help you in this matter. He will conduct this transaction as quickly and transparently as possible.

Selling a small business: Final word

The above tips are generally applicable, of course, any transaction must be approached individually. Even the simplest transactions contain pitfalls, unexpected twists and turns, and unreasonable expectations.

Most of the critical stages of a business sale often require the assistance of experts and advisors, especially if the buyer starts to involve its professional advisors.

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