How to Sell a Small Business in 5 Steps

small business

Selling a small business is not an easy task as there are a lot of complexities involved in the process. It requires detailed planning on everything, beginning from the tax records to marketing solutions. We offer you a number of effective and practical steps following which can facilitate the tough process of selling your business.

Here are 5 steps on how to sell a small business:

  • Deciding the value of your business.

Deciding the value of your business is crucial because overvaluing your business can scare away your potential buyers. To the contrary, if the value of your business is too low, you can end up with a significant financial loss. The value of a small business is determined by such factors as its overall financial state, market demand, industry characteristics, annual income, location and some other variables. There is a common presumption that small businesses worth three to six times their annual cash flow. However, this is not a proven way of evaluating a small business. Hiring a valuation professional will solve the matter to a greater extent. A qualified valuation professional will consider everything from sales to inventories, from debt to goals.

  • Getting your business in order.

Once you have made up your mind on selling your business, it is wise to get your business in order before starting to advertise it for sale. As soon as your business is put on the sale market, it is being examined by your potential buyers. If there are flaws, it is better to fix them beforehand not to repel your potential buyers.

  • Finding potential buyers.

Now when everything is put in order, it is time for placing your “For Sale” sign. There are a number of ways to make your potential buyers known about your business sale. In case your small business is very popular, there will not be a need for advertising the business sale a lot. Otherwise, as a business seller, you will have to hire a business broker to represent your business to prospective buyers. You can also reach out to your potential buyers by advertising your sale in newspapers, social media platforms or other business sale websites.

  • Getting ready for the inspection process

Before entering into a Purchase Agreement, your potential buyers would like to inspect what is “under the hood” of your business. This process is usually referred to as “Due Diligence.” In the frames of Due Diligence process, buyers may ask you to provide the following:

  • corporate formation documents;
  • corporate books and financial information
  • important agreements
  • intellectual property portfolio
  • employment agreements and arrangements
  • applicable licenses and permits
  • information regarding any past or current environmental issues
  • information regarding any past or ongoing disputes and litigation.

Make sure they sign a Confidentiality Agreement before you disclose any private information on your business. Consulting an experienced business lawyer will give you a better understanding of what is to be disclosed to the prospective buyers under the Confidentiality Agreement.

  • Signing a Purchase Agreement:

The process of selling a small business is finalized by drafting and signing a Purchase Agreement, which sets forth the terms and conditions of the sale. Typically, a Purchase agreement includes the following info:

  • whether the business is being sold entirely or it is to be sold in assets.
  • financial regulations.
  • a list of obligations and liabilities.

A Purchase Agreement is a legal document that is to be prepared by the seller’s attorney. An experienced business attorney will make sure that every detail of the deal is negotiated with the buyer is precisely included in the agreement. The knowledgeable business attorneys at the Margarian Law firm handle a wide variety of business matters, from start-ups to complex business litigation cases and are ready to provide you with solid legal help with your small business sale.

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