Selling a business is a complicated endeavor that could take several weeks or months (or longer) and will involve a number of important steps:
Determine the Reason for the Sale
Potential buyers will want to know why you want to sell your business, so it is best to consider your reasons for selling ahead of time. These may include:
- Serious Health Issues
- Caring For a Sick Loved One
- Moving On to a New Venture
- Partnership Dispute
- Financial Needs
In addition to having a response for potential buyers, it is also good to consider your reason for selling so you know for sure that this is what you want to do. Some owners put their business up for sale and get cold feet part of the way through the process and change their minds. While it is good to have some flexibility in your plans, it is also best to go into the selling process with the mindset that you plan to see it through unless unforeseen circumstances arise that would make you change your mind.
As we touched on earlier, selling a business is not something that you can reasonably expect to happen in a week or two or even a month. While every circumstance is different, you can typically expect the process to take somewhere between four and 12 months. For this reason, you should give yourself a good amount of time to prepare for the sale.
The more time you have before you have to sell, the better your chances of finding a buyer who is willing to pay a fair price for your business. It is also important to keep in mind that successful negotiations are conducted from a position of strength. For a business seller, this means having the time to consider several offers and not feeling pressure to take the first offer they get even if it is well below the asking price.
Organize Your Books
During the preparation time, business sellers should organize all of their information related to the financials of the business as well as its ongoing business and legal affairs. Serious buyers will perform due diligence, and they will expect a serious seller to be fully transparent with their books. Providing this kind of transparency is a good way to build credibility with prospective buyers.
Make Your Business Attractive to Buyers
Having some preparation time gives owners a chance to look at ways that they can make the business more saleable. For example, there may be some technological upgrades that you have been meaning to make that would allow your business to operate more efficiently. If it is financially feasible, now might be the time to move forward with these upgrades. You might also want to look at your revenue channels and marketing methods to see if there are any new strategies that would allow you to grow your customer base while optimizing your ROI.
Obtain an Accurate Business Valuation
One of the most important aspects of a business sale is setting the right price. If your business is priced too high, it could sit on the market for a long time before you attract any serious interest. If it is priced too low, however, then you could be leaving money on the table.
There are several valuation methods that could be used to determine a fair price for your business, some of the most common include:
- Income-Based Valuation: One way to value a business is to calculate its projected earnings based on its historical earnings and other relevant factors, then use a multiple of projected earnings to determine the value.
- Asset Valuation: The value of all the inventory, equipment, real estate, patents, trademarks, and other assets that the business owns. This could include intangible assets such as trade secrets and goodwill.
- Market Valuation: This method examines the comparable businesses that have sold recently and are for sale in the area and determines the price based on current market value.
Every business is unique, and there are numerous factors that might impact its value, such as location, industry, management, number of employees, recent sales trends, and many others. Oftentimes, a variety of valuation approaches can help you determine a good starting price when you put the business up for sale.
Market Your Business for Sale
Once you have all of your documents organized and you know the price that you want to sell it for, you will need to figure out how you want to advertise that your business is for sale. In order to reach the largest potential pool of prospective buyers, you may want to consider advertising in trade publications and on popular business-for-sale websites.
A business lawyer is especially helpful during the negotiation phase, both by providing confidential advice about legal issues that touch on the sale and by ensuring that the proper legal steps to complete a deal are not overlooked. A lawyer’s assistance can be as narrow or as comprehensive as a client’s circumstances require. Whether your lawyer is drafting transactional documents, negotiating with buyers, or providing counsel, a business lawyer can be an invaluable part of your team.
Work with an Experienced Southern Alabama Business Lawyer
If you are considering selling a business in Alabama, Stone Crosby, P.C. may be able to help. We have been representing south Alabamians for over a century and have advised and assisted many with business transactions.
Call our Daphne, AL office at (251) 626-6696 or send us an online message to see if Stone Crosby, P.C. can help you navigate the sale of your business.