There are many reasons why you might think about selling your small business. Hopefully, it is because you have run it successfully and profitably and are now ready to cash out before retiring or embarking on another venture.
Regardless of your reasons for selling, you should plan ahead for several years, if possible, before you hope to close the deal. You should prepare your business for sale in the interim. Here are some tips to help you make the necessary preparations.
- Organize your financials
Your eventual buyer will assume a certain amount of risk in purchasing your business. You can help the buyer’s risk assessment process, and consequently help make your company more attractive to prospective purchasers, by presenting your financial records for the last five years in an organized fashion.
- Ensure the business can run without you
A buyer may be hesitant to purchase your business if it seems that its growth potential is dependent on your involvement or that of a few key staff members. Use the preparation time to gradually work yourself out of the business.
- Transfer certain assets
There may be assets associated with the business, such as real estate, automobiles or intellectual property, that you do not intend to sell. To provide a clearer picture of cash flow potential to a prospective buyer, transfer these assets to your personal name before selling.
- Accurately represent the value
You will have to justify your selling price to prospective buyers. The price is usually a multiple of the annual cash flow, but that only tells part of the story. It also means producing a plan for future growth and making an objective assessment.
Before you decide to sell, you should carefully consider what happens after the sale and create concrete objectives for yourself, both professional and personal. You may also want to enlist the help of professional advisors who can help you handle the more nuanced aspects of the transaction.