After pouring your heart and soul into a business for a while, it’s normal to want to move on. Selling a business on rather than closing down means that it continues to exist, and if you play your cards right you can make a pretty profit.
How to Sell Your Business in 10 Steps
Selling a business is a fairly straightforward process, but it can feel quite overwhelming. We’ve broken it down into ten basic steps for any beginner.
1. Be sure that you want to sell
There are plenty of reasons why entrepreneurs sell their businesses – retirement, relocation and the desire to start a new venture are some of the biggest. Other businesses face difficult trading conditions, especially with the rise of the web.
Just like the stock market, it’s best to buy low and sell high. If you’re able to cash in while the business is doing well, that’s ideal. However, that isn’t always possible – and sometimes you need to cut your losses and leave a business that is in decline.
2. Consider working with a professional
Working with a business transfer agent, also known as a broker, comes at a price but can save you valuable time and stress. A good agent will know exactly where to sell your company and get a higher price than you could on your own. You also have the peace of mind that comes with having an expert handle matters.
3. Get your house in order
First impressions count – so make sure your business is attractive to potential buyers. Premises should be clean and tidy, with paperwork all in order. Any broken equipment should be repaired or replaced; the cost will quickly be made up in the final selling price.
4. Create an information memorandum
Your company’s information memorandum, also known as a prospectus or book, is a thorough guide to the business, how it operates and what the market looks like. Consider it the manual for your business.
Then, prepare a one-page summary. You should cover:
- Premises
- Advantages over competitors – e.g. customer base
- Potential for growth
- Reason for sale
- Revenue, gross profit and EBITDA
5. Find your selling platform
Online platforms are increasingly popular – key players in the UK include Businesses for Sale, Daltons, Rightbiz and Bizdaq. Some businesses even advertise on Gumtree.
However, there are myriad ways to make sales, so think outside the box. Consider reaching out to competitors, customers and suppliers. Local and industry-specific publications can also be a good way to go.
6. Vet your buyers
As obvious as it is, the best buyers are experienced and have funding behind them. When assessing potential suitors, consider whether they are experienced in running businesses, especially in your sector. Find out how they intend to finance the purchase. Once you find a credible buyer, arrange a face-to-face meeting.
7. Enter negotiations
Between seller and buyer you’ll need to agree on a price, any terms (for example, staying on as a consultant for the first months) and method of payment. Most buyers will pay in a combination of cash and a bank loan; you might agree to a lower price for more cash.
8. Create the heads of terms
Heads of terms, or simply heads, outline the terms of the deal. They are not typically legally binding, but ensure that both parties are on the same page. It’s common to keep redrafting this document until both sides are satisfied.
9. Be ready for due diligence
It’s crucial that you are honest about your business, warts and all. Your buyer will typically spend two to three months going over your business with a fine-toothed comb, scrutinising everything from accounts to your online reputation. The last thing you want is for an offer to come crashing down because you glossed over vital information. Be upfront about any issues and ready to work with your buyer on them.
10. Close the deal
Once the buyer is satisfied that they want to go through with the deal, they will sign a binding contract of sale. Now that it’s official, you can enjoy the fruits of your labour. Make sure you’ve met your legal responsibilities, and then take a well-deserved break!