If you’ve built up your small business to the point where it is quite valuable, you may be considering selling it. Many entrepreneurs sell their small businesses if they want to start another business or even if they want to retire.
Selling a business can be a complex process, as you need to consult with your business partners, research any potential buyers, decide whether you want to sell all or part of the business, and get an accurate value of your business. Read on to learn more about selling a small business.
Consulting with Your Partners
One of the most important things that you must do before selling a business is to consult with your business partners. Of course, you do not need to do this if your business is a sole proprietorship or a single-member LLC. Otherwise, you are legally required to get the permission of all partners before selling the business.
In addition to getting your partner’s permission to sell the business, you should also discuss the asking price they want to set and how they want any potential deal to be structured.
Get an Accurate Value of Your Business
It is vital that you get an accurate value of your business before you put it up for sale. The standard rule of thumb is to take your business’ yearly profit and multiply it by 2.28. However, this will only give you a very rough idea of your business’ value.
If you want a more accurate value, you should start by using an EBITDA business valuation calculator. This will give you a more accurate starting point for estimating the value of your business. However, you should have a professional business broker study your business and come up with an accurate value.
Depending on your business’ assets, liabilities, revenue projections, and other factors, it could be much more or much less than you think.
Research Any Potential Buyers
If you have come to an agreement with your business partners and you have had your business valued by a business broker, the next thing you should do is research any buyers that are interested in your business. Unfortunately, some people who attempt to buy small businesses do not actually have the right finances in place.
There is even a possibility that a competing company may pretend to be interested in purchasing your business to get inside information on your operations. You have to do your due diligence to ensure that any buyer you reach an agreement with will actually hold up their end of the bargain.
Selling All or Part of the Business
If you are in the negotiation process, you may be faced with the choice of selling all or part of the business. As this can be a difficult decision, you and your partners should decide what you want to do beforehand.
You should also decide whether you want to be paid upfront or if you are willing to accept payment in installments. Keep in mind that this decision can have serious tax ramifications for both you and your partners.