Preparing to Sell Your Business: A 7-Step Guide To Be Ready

If you are an owner preparing to sell your business, there are several steps to follow to reach a fair market value and have a successful transaction.

From having clarity on why you are selling to preparing financial statements, the best is to have a plan. This guide can be your starting point to make the most out of the sale and achieve your goals.

7 Steps to prepare your business for sale

1. Understand your reason for the sale: Craft your story on why you are selling

Prospective buyers usually want to know why you are selling. It is the first clue for them on the state of your company.

Business owners can sell due to retirement, a career shift, exploring industries, taking a break, avoiding a dispute with partners, or even because they don't know how to take the company to the next level.

However, if your business is for sale due to a lack of profitability it can be harder to find a potential buyer. If this is the case, it's best to focus on increasing profit margins, building a steady client base, and developing consistent revenue streams, among other activities that can make the venture more attractive.

2. Start the sale process early on, even if you are not sure

Beginning the sale process early allows you to list all the information and documents needed for the sale. By planning the sale, you can make the most out of the transaction because you'll have more time to negotiate and pay off debts, improve the financial health of the business, and work on increasing your customer base.

Additionally, you're ensuring the transition is as smooth as possible for everyone involved.

3. Gather a team of experts

Having an experienced team around you during the planning stage can give you insights into how to conduct yourself during the process, the negotiation, and the overall transaction. Hiring professional advisors reduces the chances of making mistakes like valuing your business lower than its actual worth.

With a team of experts supporting the sales process, you'll have more time to focus on the operation, keep the organization running, and work towards financial goals that can increase your asking price.

You can include a business broker, accountant, and lawyers specialized in acquisitions. If you don't know where to start, you can try an online business marketplace like Boopos or start listening to M&A podcasts to get the best tips from experts.

4. Get a business valuation

With a business valuation, you'll know what your company is worth and forget about what you think is worth. Having an outsider's point of view can help you ensure you're asking for a fair price.

You can also gain more insight into where your company stands in the market, its financial situation, challenges, opportunities, strengths, and weaknesses.

The valuation can come from several parties, such as a business broker, accounting, or banking firms. Make sure that the entity responsible for your business valuations can access the latest data from the industry for accurate results.

Usually, the valuation results come with a document that includes a detailed explanation of your organization's worth, which can be the starting point for negotiating with potential buyers.

5. Organize your business information and documentation

Any potential buyer would want to go over the financial statements from the past 3 to 5 years. Before reaching this step, organize all the essential information and relevant documentation to speed up the due diligence process.

In this step, you'll need additional documents such as tax returns, any ongoing contracts, files regarding intellectual property, a list of equipment included with the sale, an operations manual, and others.

6. Find potential buyers

After following these steps, it's time to find buyers for your venture. You can explore an online marketplace, hire a business broker, advertise, or market your organization through your network.

The best approach will vary according to the industry your venture belongs to. You can research how similar businesses found their buyers. For example, Boopos specializes in online profitable businesses like SaaS and ecommerce.

7. Reach an agreement and transfer ownership

Once you find a potential buyer and negotiate the right price, it's time to build a sales agreement. To do so, you need the help of a lawyer. Keep in mind that these processes can take some time due to the amount of information and documents that have to be processed by the involved parties.

Extra tips before the deal closes

Several factors could impact the transaction's outcome while going through a sale. To make the most out of the deal, here are some tips:

1. Get potential buyers to sign an NDA

Potential buyers should sign an NDA or confidentiality agreement to protect your business's sensitive information. During the sale process, there'll come a time when they will have to review your important documents and information, such as financial statements, cash flow information, a list of physical assets included in the deal, and more.

2. Ask your experts when you’re disclosing too much information

The experts within your team will help you make the right decisions. They can advise on their expertise, and you can freely ask them how to increase your business's market value or if you're potentially disclosing too much information to third parties.

3. Get a letter of intent (LOI)

A letter of intent is a written statement from a potential buyer stating their interest and commitment to buying your business. The document should include the deal's most important terms and conditions, and they can also come with extra stipulations and timelines.

Once both parties sign the letter, they can move to review the transaction details. However, keep in mind that LOIs are not necessarily legally binding.

4. Be aware of potential changes that can affect the deal

The departure of key employees, adoption of new tech, creation of industry regulations, or even changes in the industry can become a risk for closing the deal. Once the transaction is set in motion, it becomes a time race to avoid any potential internal or external factor to play a role against your deal.

5. Have your taxes in order

Different deal structures will result in other tax implications. Your attorney and accountant can walk you through the pros and cons of each scenario and help you choose the one that best meets your expectations. Consult with an expert about the structure in which you don’t lose an amount of profits because of taxes.

Are you looking to sell your business? 

Whether you are ready to sell your business or want to explore the possibility, Boopos can be a great partner. Our data-driven platform connects serious buyers to sellers that offer profitable companies, and our team can guide you through every step of the transaction.

Contact our advisors today!

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