5 Steps to Selling Your Small Business

Deciding to sell a company is a huge step, but it’s only the first in the intricate process of selling a small business. 

To prepare for what lies ahead, this is an overview of the steps to selling a company. Before doing anything drastic, take a  few moments to understand what a business sale entails.

Consider Reasons to Sell and Timing

Even if you’re more than ready to walk away from your company, selling a business is rarely a quick process. Before making any hasty decisions, assess why you want to sell and whether it’s the right time.

Usually, it’s best to wait a year or two before putting your business on the market. You will likely need to prepare the business and your personal affairs for the sale. 

So, why do you want to sell?

Are you…

• Ready for retirement?
• Feeling overworked?
• Bored with this business?
• Having issues with other owners or partners?
• Dealing with a personal or family illness or death?
• Looking to start a new business?
• Changing your lifestyle due to a divorce or other situation?

Whatever the reason, it will affect how you approach the sale. 

Selling during partnership disputes can involve more mediation and negotiations. Selling while dealing with an illness or death can be especially complex, and you may want to sell as quickly as possible to focus on what’s important. 

Some reasons to sell allow you to take your time, while others might feel more urgent.

Before doing anything else, determine why you want to sell the business and how that impacts your time table. This can help you follow the rest of these steps accordingly and not rush things or move too slowly.

As mentioned, the average time it takes from deciding to sell and signing the sale contracts is between one and two years, so plan for a similar timeframe.

Obtain a Business Valuation

We listed this as the second step to selling your small business, but two and three are somewhat interchangeable. 

A business valuation is a detailed report that conveys your company’s value, including its tangible and intangible assets, growth potential, and more. 

If you believe your business needs substantial work before it is ready for sale, you may opt for a business appraisal instead of a business valuation. An appraisal gives you a looser idea of company worth, and costs less to conduct. But if you think your business is in good shape, a valuation is the right move and provides the value you can present to potential buyers.

To help you understand what this valuation will entail, this is a list of common assets and considerations in a business valuation:

• Brand and reputation
• Potential
• Patents and trademarks
• Contracts
• Accounts receivable
• Client and supplier lists
• Key employees
• Assets
• Market trends
• Growth projections
• Capital structure 
• Business strategies
• Location
• Traffic and popularity

If you think your business will perform well in all these categories, you can schedule the valuation with a professional evaluator. Otherwise, consider doing step three before the valuation process. 

Organize and Optimize Your Business

To entice potential buyers and profit off your business sale, your company must be in tip-top shape. This means ensuring all operations and assets are optimized and stable and the company is attractive to buyers.

We highly recommend taking steps to increase business value before putting it on the market. These steps can include:

• Organizing financial records
• Investing in marketing and brand reputation
• Finding opportunities to increase profits
• Creating a comprehensive business plan
• Implementing efficient operations
• Securing a stable business location
• Diversifying revenue streams
• Nourishing vendor relationships
• Building a diverse client list
• Eliminating unnecessary expenses
• Setting up a strong team
• Showing projected growth
• Firmly separating business and personal expenses
• Drafting a transition plan
• Developing a unique selling point

These tactics can make your business more appealing to buyers and increase its value — which is why you may want to perform the valuation after this step. 

If this all seems overwhelming and impossible, you can hire an expert advisor to guide you. 

Catalyst Group ECR experts can make organizing and optimizing your business more streamlined with their extensive knowledge and experience.

Find a Broker and a Buyer

Once you know your company’s value and think it’s ready to hit the market, you should enlist the help of a professional. 

Most business sales require a broker to facilitate meetings, contracts, and the transaction as a whole. However, it is possible to sell a company without a broker. If you decide to go that route, we still recommend enlisting an advisor to ensure you get the most for your business and utilize the proper contracts.

You may also find that selling your small business without professional help is more complicated than expected. Some of the tricky steps a broker or advisor could help with include:

• Creating a confidential information memorandum (CIM)
• Crafting a targeted buyer list
• Setting a price
• Marketing the business
• Soliciting indications of interest (IOIs)
• Planning management and buyer meetings
• Collecting letters of intent (LOIs)
• Handling negotiations
• Writing sales contracts
• Conducting due diligence
• Planning your exit
• Finalizing the transition strategy

You might save money by not hiring a broker or advisor, but tackling all the above will be extremely effortful and time-consuming if you’ve never sold a business before. And if you have sold a business before, we don’t have to remind you how much work it is.  

Also, you might save money now, but a broker or advisor can probably maximize your sales profits in the long run. It’s best to utilize a professional and benefit from their experience and know-how.

Complete Contracts and Transition Plan

Your business is ready for sale, and you have a buyer on the hook, so we’re almost at the end of the process! The final step is tying up loose ends and letting the ink dry. 

Before anyone signs sale contracts, the buyer will typically conduct due diligence to ensure all business reports and claims are accurate. Essentially, they want to confirm the valuation is honest and there aren’t any massive skeletons in the closet. 

Drawing up and signing contracts may involve but is not limited to:

• Confirming financing
• Negotiation agreements
• Nondisclosure/confidentiality agreements
• Establishing escrow
• Reassignment of lease
• Security agreements

This is where you’ll be glad you have an experienced broker or advisor in your corner. 

Once everyone provides their John Hancock on the purchase agreement, the bill of sale transfers the business and all assets to the buyer. 

The only remaining step is to follow through on the transition plan or agreement if you have one. The new owner may ask you to stay on for a period to ensure a smooth transition. 

Streamlining Your Small Business Sale

It’s common to get lost in the weeds when selling a business. From finding the right timing to reviewing purchase contracts, it’s all overwhelming and complex. 

With the Catalyst Group ECR, you don’t have to take this on alone. Contact Lori Moen at Catalyst Group ECR today and relieve some of the stress of this massive transition. As a Certified Exit Planner, she has the experience and tools to help you navigate the sale with ease and walk away satisfied.