Selling A Business
Steps in Selling Your Business
1. Determine a Realistic Price Range
If you price your business too high, you'll scare away buyers. If you price it too low, you'll lose out. To figure out a range that's realistic, you can use one of several methods - and then maybe blend the results. For example, you can base the price on the value of the business's assets, and add in a sum for the goodwill the business has developed. Or you can see how much comparable businesses in your industry and locale have recently sold for. Or you can use an industry formula (for example, a value based on the number of units sold annually or a multiple of average earnings).
2. Understand the Tax Consequences
Taxes can take a huge bite out of the money you receive for your business. It pays to know just how big that tax bite will be -- and to try to lower it, most likely with help from a CPA or other tax expert.
Your tax bill will be influenced by two key factors: How your business is legally set up and -- in the case of a corporation or LLC -- whether you're selling the assets or the entity. Sales of all sole proprietorships and almost all partnerships are asset sales. So are the sales of many corporations and LLCs.
3. Look Good for a Sale
The getting-ready process includes not only sprucing up your premises, but getting your numbers in good shape. Consider recasting your tax-return numbers for prospective buyers. This can involve, for example, adding back to your profits discretionary expenses such as medical insurance for you and your family, travel and entertainment, business vehicles, memberships and subscriptions, and salaries and bonuses paid to family members.
In recasting your tax numbers, you're not deceiving either the IRS or prospective buyers. You're simply pointing out that the buyer may prefer not to spend money on some of these items in the future.
4. Seek Potential Buyers
If your business is well known, word that it's for sale may be enough. Or, possibly someone close to you -- an employee, a friend, or a customer -- could be a prospect. But more likely, you'll need to reach out to a bigger pool. This often includes putting ads in newspapers and trade publications, and on business-sale websites like The business Broker Journal.
Confidentiality is one of the most important tools when it comes to selling your business and should not be taken lightly. It is extremely important when selling your business to keep as much information as possible confidential. This means, it is not a good idea to advertise the business name or address for sale because it can negatively affect your business operations. If existing employees find out your selling they may feel their job is in jeopardy and may begin looking for another job. The same goes for customers or vendors, if they learn your business is for sale, they may feel like your business is closing or that they are loosing the business relationship they have built with you over the years.
6. Hire A Business Broker
A Business Broker is a professional business advisor experienced in buying and selling existing businesses. Business Brokers generally work for commission only and are paid by the seller. Fees are usually around 10 % of the purchase price with a minimum fee between $8,000 & $20,000. Find a local business broker.
There are many benefits to hiring an experienced Business Broker.
1) Brokers already have established relationships with people interested in buying existing businesses.
2) Brokers will handle the transaction from start to finish.
3) Brokers know how to keep your business sale confidential as well as pre-screen buyers.
4) Brokers will advertise your business for sale confidentially using their own money to do so.
5) Brokers work for the seller and are paid a commission only after selling the business.
6) Brokers will help you determine the best price to list your business for sale.
7) Brokers will help you negotiate the best price for a business. Often much higher than you would get if selling your business by yourself.
8) Brokers will help the buyer with financing solutions.
9) Brokers will help the buyer and seller through the due diligence process.
10) Using a broker in general will save you money, time, and stress.
7. Negotiate Your Deal
In working out the terms of the sale, some key issues include whether you'll sell the business entity or just its assets, what assets (like a truck) you want to keep, and how the buyer will pay you (usually, a down payment plus installments).
8. Sign a Sales Agreement
You'll need to put the deal in writing. Among other things, your agreement should list and value the assets the buyer is purchasing, list any contracts the buyer is assuming, and include protections that assure you'll get paid the full sale price. If you attempt the first draft of the sales agreement yourself, have it reviewed by a business lawyer to make sure you've covered all the bases.
9. Plan for the Closing
The closing is the meeting at which you transfer the business to the buyer. To reduce last-minute hassles, make a checklist of all the papers you and the buyer will need to bring -- everything from the documents and money associated with the transfer to your alarm codes, keys, and customer lists.
10. File Paperwork With the IRS
After the sale, you and the buyer need to jointly complete IRS Form 8594, Asset Acquisition Statement and file it with your tax returns for the year of sale.