Selling Your Small Business? Keep these things in mind

Thinking about stepping down from your small business to retire or pursue other passions? If you hope to sell it for a profit, there are many things to consider.

Assess and assign value. Arriving at a realistic valuation for your business can be tricky. Setting your price too high will deter serious buyers. Setting your price too low may also undermine a sale. Find out what comparable businesses have sold for to help determine your price. Your figure should take into account inventory, receivables, equipment, property, market share and other business assets and be based on historical and projected revenues.

Clean house and crunch the numbers. Just as you would tidy up your home before opening your doors to buyers, clean up your business before putting it on the market. Your office or plant should be spic and span, but orderliness goes deeper than that. Straighten your books and get the necessary paperwork together to demonstrate financial viability. A serious buyer will ask for profit-and-loss statements, balance sheets and tax returns going back several years. You’ll also need to provide a list of inventory, equipment, furniture and whatever else will be included in the sale.

Market your business. Approach the sale of your business as you would the sale of any product—with a marketing plan. Create a brief document that describes the business opportunity and its income-generating potential. Run ads in trade publications or online communities to get the word out that your business is for sale. To safeguard your proprietary information, ask interested parties to sign a confidentiality agreement before revealing details about your business.

Choose the best candidate. If it matters to you whether your business thrives under new ownership, then finding the right buyer is very important. Don’t overlook the possibility of handing your business off to a capable employee or even selling to a competitor who wants to expand. It’s perfectly acceptable to ask for financials and other history from a prospective buyer before you open your books for review. This step will help you weed out individuals who are ‘just looking’ or financially unable to purchase your business. Even as you enter final negotiations with a buyer, it’s important to continue to answer inquiries and keep the doors open for other bidders just in case the deal in process falls through.

Help finance the sale. Most small business deals are not 100 percent cash arrangements; you may need to finance a portion of the transaction. Talk to your bank in advance to determine if your business qualifies for financing. You will have a smaller tax bill by receiving payments over time versus in one lump sum. However, going the installment route also introduces risk and makes it even more important to find a suitable buyer who will operate your business successfully. If your successor fails, you may end up receiving less than you counted on.

Consult professionals. There are a number of professionals whose services can help make the sale of your business less risky. Ask your accountant to make sure your books are in order and to perform additional number crunching as needed. A business broker or mergers and acquisitions professional can help you locate a buyer and negotiate the sale. A financial advisor can help you examine the financial consequences of selling your business, both in terms of tax liability and income. Once you find a buyer, a lawyer can draw up your purchase agreement and escrow arrangement.

Give it some time. Realize that selling your business, even a small one, is a process that takes time. Plan on a minimum of six months to a year or more to prepare your business, locate a buyer and seal the deal.

AJ Jugan and Brian Stumpf are financial advisors and Certified Financial Planner™ professionals. Andrew (AJ) can be reached by calling 412-635-5813 or emailing andrew.m.jugan@ampf.com. Brian can be reached by calling 724-799-2782 or emailing brian.d.stumpf@ampf.com.