Preparing a business for sale might not come as an easy task for most, but in the end, will prove to ensure that the owner is left with as much money as possible. Although it can be a very exciting and profitable experience, some owners have sold their businesses without being prepared and ended up getting much less than what it was actually worth. So let’s make sure you are ready to sell your small business.
The first and most important part of selling your business is to get it evaluated. Without the right evaluation, it’s almost impossible to correctly price any business. Although the price of a business can be subjective there are 3 main approaches to coming up with a good price that you agree with and that should keep potential buyers interested.
The first is going to be evaluating your plant and machinery assets. This includes all types such as physical assets, intellectual property, and employee/customer worth. The physical assets, which include things like furniture, computers, inventory, machinery, are usually the easiest to price. The hard part is to put a price on the rest of your assets because they can be considered subjective, so even though you might think they are worth a certain amount of money, buyers might not agree with you.
Intellectual property includes patents and trademarks. The best way to come up with a price on those is to try and find similar products or services that you can do extensive research on. By researching this, you will get a better idea of what to ask for and you can also use the information to prove to buyers they are worth the amount of money you are asking for. Putting a price on customers and employees might prove to be pretty hard as well, but can also be some of your most important assets. If you have customer contracts that guarantee lots of future income, you can include those as parts of your assets. When it comes to employees such as programmers, designers, and other professional personal that make your business thrive, you will need to prove their worth from previous projects.
Worth based on demand
The second approach would be to check the market and estimate your business’s worth off of the theoretical demand. If you prove to have a larger market, you can then show that your growth projections will be big, getting you more money for your business. If your business is still quite small, it might be a little harder to prove everything to get a sizable amount of money, but if your able to prove its potential, you will be left with a great amount of money. There are multiple different things to look at in this overall strategy such as location, your competitors information and if you can compete with them, customer contracts, and marketing campaigns that have been successful.
The third approach, which is the hardest for any young business, is the income evaluation approach. This includes financial analysts reviewing the companies potential future income cash flow and then using a certain rate to discount it. The bigger and more established your company is, the lower the discount percentage, giving you more money once the sale goes through. For newer businesses, this percentage can go as high as 60 percent, making your future income potential look incredibly low. The reason why there is a calculated discount percentage is because no business is guaranteed to succeed in the future, and the new the business, the more risk it has to fail. The analysts will also look at multiple different financial aspects of the business, such as taxes, earnings, depreciation, and others to come up with their amount of how much the business is worth.
Get All Business Related Documents in Order
By the time you have completed the valuation, you will most likely already have all your books in order and understand your business’s profitability, but it is still worth mentioning. The last thing you want is to find a potential buyer, but then not have the documents they require to fully review your company. You also want to make sure any legal documents you might have are readily available.
First Impressions are Important
Even the slightest bad impression made onto a buyer can have them running. It is very important that the first impression made on your potential buyers is an excellent one. Always keep it professional and make sure to have the exact reason why your selling the business. If you are showing off the company and you say it’s so amazing, then why are you even selling it? Make sure to have all questions answered and are able to produce anything they ask for as soon as possible.