What Steps Should be Taken Before Selling a Small Business?

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You should understand the steps that need be taken before selling a small business. It’s a process that begins long before you’re ready to take the plunge. In most cases, selling your small business will start at least a year before you’ll sign the last bit of paperwork turning the business over to someone else. The time before the sale should be spent on a variety of tasks within the business. You’d never put your house up for sale without cleaning out the clutter and increasing the curb appeal to get the best price.

1. Put a Value on the Company

While you might believe your company is worth millions, you’re operating from a place filled with bias and sentiment. It’s best to hire a qualified professional who does company valuations to tell you what your business is actually worth. You’ll never sell your business if your price is too high for most buyers. The analysis of your business will include its current state, the demand in the market, what kind of inventory you have and the expected future growth.

2. Clean the Financials

A potential buyer will not purchase your business if there are any red flags in the finances. Every transaction should be transparent, and reports and financial statements should give a clear picture of the state of the business. An accountant can help you present a clean, clear financial picture to potential buyers. Buyers want to see all income accounted for on the books, and they don’t want to see personal cars or property on the books for the business.

3. Reverse Declining Sales

Many business owners who are having a hard think that they should sell. That’s the worst time to sell the business. Instead, diversify your customer base and show a sales increase by using marketing and promotions, according to CNN Money. You want the business to be attractive to potential buyers. That won’t be the case if the business only has one big customer, or sales are declining.

4. Use a Business Broker

Even if you’re the best salesperson in the world, you’re unlikely to have contacts with buyers like a business broker would. They operate within a network of buyers and sellers, so they would understand how to find a qualified buyer and make a deal for the best price possible. They also know how to send buyers to the best financing institutions. The broker will also know how to pre-qualify buyers to ensure that the deal doesn’t fall through, which can happen frequently.

5. Understand the Business Contracts

While you will have a business broker and a lawyer with you on this deal, it’s always vital that as the business owner you have an understanding of the contracts. There should be an asset purchase agreement, a legal contract that details the assets, both physical and intellectual, and employee agreements. One of the biggest parts of the business contracts is the list of assets that will change hands when the company is purchased. It can take some time to list everything owned by the company as well as how much it’s worth.

Related Resource: How Do Small Business Owners Make Their Money?

There’s a lot to be done before you can begin the process of selling your company. The previous steps should be taken before selling a small business, and it could take many months before you’re ready to entertain offers.

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