Selling a Business: What You Need to Know

Determining When to Sell a Business

When it comes to selling a business, it isn’t always a fast process, but it does pay to do it at the right time. That isn’t always possible, however, because family obligations, health issues and financial concerns may warrant a rapid sale. In the event that the sale isn’t being done in a rush, it makes sense to try and wait until the circumstances are most favorable, and that generally means at a time when the business is doing particularly well. Additionally, it generally benefits the business owner to sell when the economy is on the upswing and when the business is expected to continue to be profitable in the coming year or years.

Determining the Value of a Company

Today’s business owners need to take care not to shortchange themselves when setting the asking price for their pride and joy. With so many assessment options and tools available online and otherwise, it is becoming easier to find information about how to set the right asking price. That being said, many people choose to hire a professional to help determine the value of a business and ensure the business owner benefits from the sale to the fullest degree possible.

Typically, one of three methods is used to determine business value. One is to take an asset-based approach, which involves reviewing a business’s assets and then determining value based on the current market value of them. Some oppose this approach because it doesn’t factor in important variables such as future income projections of a company. Another, and possibly the most popular option, is to take an income-based approach. This involves looking at a business’s profits and then comparing them against any outstanding debts owed by the business to set the asking price. The third and final method is the market-based approach. This is something like the common real estate practice of looking for comparable homes in a neighborhood before setting an asking price, only it’s based on the value of similar businesses, not homes.

Finding Prospective Buyers and Financing the Sale

Finding buyers for small businesses can prove time-consuming and difficult, so it is wise to anticipate the process taking some time to complete. Many people rely on professionals who specialize in small business sales and in helping businesses merge with another. It’s also important to remember that networking can go a long way. Other small business owners in a similar line of work make for good prospective buyers, and they may also serve as additional networking tools who can connect sellers with others who may be interested in the sale even if they personally are not.

Once a buyer is found, odds are the purchase will have to be financed. Again, this is not unlike the process involved in selling or buying a house. A bank usually comes in to the equation, and the bank or other financial institution will assess the prospective buyer to determine whether to issue the loan. Seller financing is another financing option used frequently by smaller businesses, and, as it sounds, it involves the seller financing part of the price of the business.

The Asset Sale: An Overview

Like selling a home, the process of selling a business and its assets involves a lot of red tape – meaning a lot of documentation and paperwork. Some of these documents, agreements and letters are to be completed prior to closing, while others will be handled during closing. Among the most notable is the asset sale agreement, which stipulates exactly what is to be included in the sale of the business. The document typically contains information such as the price paid for the business, what assets are included, the names and information of the buyer and seller and any fees associated with the sale, not unlike the sale of a home. It typically also outlines the payment terms associated with the sale and the date of the official closing.

People choose to sell businesses for many different reasons. This content is intended to give today’s business owners an idea of the processes involved should they consider selling their own.