You’ve worked hard to build a successful company. Chances are good that you’ve invested years of blood and sweat in the process. Now it’s time to reap the financial reward of all that work.
Selling a business is one of the most significant decisions a business owner can make. It requires careful planning, strategic thinking, and a clear understanding of the market. Many small business owners feel overwhelmed, but the right guidance can help.
In this guide, we’ll walk through each essential step, from valuing your business to closing the deal, and discuss how Axia Advisors, a trusted M&A advisory firm, can help you maximize the value of your sale.
How Do You Sell a Business: Timing
Before we jump into the process of how to sell a business, let’s talk timing. Is now the right time for selling a business? Your personal timetable as the business owner plays a role, but there’s more to consider. Is the market right for a sale? Is the business established enough? What’s the landscape look like?
So far, 2024 has been a year to sell. Acquisitions of small businesses increased by 10% just in the first quarter of the year, with over $1.8 billion in sales. However, you’ll want to look at other factors, too.
One of those is your personal interest in running the business. Sometimes, you might explore how to sell a business based strictly on financial matters. At other times, it’s more about what you want as a business owner. Is it time to cash out and focus on something new? Perhaps it’s time to get out of business ownership entirely and focus on retirement.
Other factors that might make this a good time to sell include:
- If you’ve received a compelling offer from a potential buyer without actively marketing your business.
- If you’ve noticed significant industry changes and don’t want to deal with adapting the business to them.
- If you’ve just experienced a reduced personal interest in operating the business.
Once you’ve decided that the time is right, you can move on with the process. However, don’t do so unprepared. Planning is vital.
The Importance of Planning Ahead
The process of selling a business is often more complicated than many owners realize. You’ll need to consider quite a few factors, including the value of the business, market conditions, legal requirements, and the transition process.
Proper planning is the key to ensuring the sale is smooth. Without proper prep, business owners can face unexpected roadblocks, financial losses, or even deal failures. None of those is a preferred outcome when your goal is to sell a business.
Axia Advisors understands the unique needs of small business owners and helps them plan for a successful sale. By taking a strategic and personalized approach, we ensure you’re prepared for each stage of the sale.
Selling a Business: The Valuation Process
One of the first and most important steps in selling a business is determining its value. This requires more than just looking at financial statements. You’ll go through a comprehensive assessment of the company’s assets, liabilities, market position, and even its future earning potential.
The key elements to consider when valuing a business are:
- Financial Performance: Reviewing profit and loss statements, balance sheets, and cash flow. Any buyer will want to know how the business is performing financially right now, as well as how it has performed historically. Those two elements can also help predict future financial performance.
- Assets and Liabilities: What does the business own? This can include things like inventory, real estate, and intellectual property. Those assets are balanced by liabilities. These are debts tied to the business that a new owner will take on. They include things like real estate loans and equipment loans.
- Market Position: How does the business compare to competitors? What is its market share? The answers to those questions will help you position the business when it goes to market. The stronger the market position, the better the price and (hopefully) the stiffer the competition.
- Growth Potential: What are the business’s future prospects for expansion or revenue growth? Are there hurdles that inhibit growth, like local regulations? Are there factors that encourage growth, like proprietary technology or a rapidly growing audience?
At Axia Advisors, we offer a business valuation calculator that can provide an initial estimate of a company’s worth. While this tool is a great starting point, a more detailed analysis conducted by our experienced M&A advisors will ensure the most accurate valuation. That’s the key to selling a business as quickly as possible without losing value. For a deeper dive into the valuation process and how we can help you, visit our business valuation page.
Preparing Your Business for Sale: Getting Everything in Order
Before putting your business on the market, you need to ensure it’s in the best possible condition. This involves addressing any operational issues, organizing your financial records, and finding ways to improve profitability.
The idea is to make the company as attractive to potential buyers as possible. Think of it as being similar to selling a home. Things like giving the interior and exterior a fresh coat of paint, addressing landscape issues, and making necessary repairs and improvements will help you get the best price.
Some of the key steps to prepare your business for sale include the following:
- Financial Housekeeping: Make sure your books are accurate and up to date. Potential buyers will scrutinize your financials, and inconsistencies can raise red flags. It pays to let a professional handle this if you’re not particularly adept at accounting. Don’t be surprised if a potential buyer asks for year-to-date results.
- Streamline Operations: Address inefficiencies or operational bottlenecks that could detract from the business’s value. This is your chance to invest in automation for repetitive manual tasks, implement new inventory management tools, improve workflows to remove inefficiencies, and more. Again, the idea is to make the business more attractive to potential buyers.
- Improve Profitability: Boost sales and cut unnecessary costs to present a healthier bottom line. Improved marketing can help here, but don’t overlook other strategies, like changing your debt management methods to help reduce the business’s liabilities.
- Legal Readiness: Ensure that all contracts, leases, and legal obligations are in order. This also includes handling any legal disputes or pending litigation so that the new owner doesn’t have to deal with unnecessary legal entanglements right off the bat.
Buyers are more likely to make offers on a well-organized business that’s running smoothly. Axia Advisors will help guide you through these preparatory steps, ensuring your business is in top shape for sale.
Finding Potential Buyers: Exploring Your Options
Once your business is ready for sale, the next step is finding the right buyer. This can be one of the most challenging parts of the process, as it requires marketing your business effectively and identifying serious buyers capable of completing the transaction.
You have two main options for finding buyers:
- Through Your Own Network: Sometimes, the best buyers are already within your professional circle. This could include competitors, industry contacts, or even employees. Be willing to think outside the box in your search for a buyer.
- Through Brokers: Business brokers can help you find qualified buyers, but it’s important to understand their role. Axia Advisors, unlike brokers, acts as an M&A advisory, representing sellers and ensuring their interests are prioritized throughout the sale process. In other words, we work on your behalf to ensure a smooth sale and that you get the most possible for your business.
Marketing the business is also a crucial step. After all, if you don’t spread the word, potential buyers won’t know that the business is available. You’ll need to invest in strategic marketing steps when selling a business, such as social media, local advertising, or even within business networks.
Marketing can be challenging for small business owners, of course. Thankfully, we can help. Axia Advisors uses a strategic approach to ensure the business is marketed effectively, targeting the right audience and positioning the company in the best light to attract potential buyers.
Negotiating Offers: Evaluating and Structuring the Sale
How do you sell a business once offers start coming in? When buyers show interest, it’s time to evaluate things. This isn’t just about looking at the highest bid. The sale terms are just as important. Some buyers may offer attractive numbers but include conditions that aren’t great for the seller.
Consider the following during negotiations:
- Price vs. Terms: Is the buyer offering a lump sum, or are they proposing installment payments over time? If it’s the latter, are the payments enough to make the deal worth it?
- Contingencies: Are there any conditions the buyer requires to be met before finalizing the sale? If so, how much will they affect the timeline? How much will they eat into the amount you walk away with after the sale closes?
- Non-Compete Agreements: Will the buyer require you to sign a non-compete clause, preventing you from starting a new business in the same industry? If so, will that affect your plans on exiting the business?
Axia Advisors will help you navigate these negotiations, ensuring that you understand the pros and cons of each offer. Our goal is to maximize the value of the sale while ensuring that the terms are favorable to you as the seller.
How to Sell a Business: Closing the Deal
Once you accept an offer, the final step is closing the deal. This involves completing the legal and financial documentation necessary to transfer ownership. Both parties need to ensure that all terms are met and that there are no lingering issues that could delay the process.
The closing process typically involves:
- Legal Documents: Review and prepare purchase agreements, transfer of ownership, and other legal contracts.
- Financial Transfers: Finalize the payment structure, including any escrows or holdbacks.
- Transition Plans: Clearly define the handover of operations, staff, and client relationships so everything goes smoothly.
At Axia Advisors, we work closely with you to ensure a seamless transition, helping to avoid any last-minute issues that could derail the sale. We focus on making sure that all aspects of the deal are aligned with your goals.
The Timeframe: How Long Does It Take to Sell a Business?
How long does it take to sell a business? Many business owners are surprised to learn that selling a business can take several months or even longer, depending on different factors. These include the type of business, its financial health, market conditions, and buyer interest.
For instance, if the national market is generally up, but your regional market is slowing down, you might wait longer to sell a business than someone in a different region. A small business with very strong financials will sell faster than one in poorer financial health if all other things are equal.
How do you sell a business when the timeline is in doubt? The best option is to go into the process prepared for a wait. Again, it’s not uncommon for a sale to take months even with favorable conditions.
Why Choose Axia Advisors?
Axia Advisors is more than just an advisory firm—we’re a trusted partner for business owners navigating the complexities of selling their business. With our expertise in M&A, Axia Advisors provides personalized, strategic advice tailored to each client’s unique needs. We focus on confidentiality, ensuring your privacy during the sale process.
