In many ways, owning a small business is like raising a child. You brought it to life, dedicated your time, energy and resources to nurturing it, and helped it grow into what it has become today. But just as parents eventually have to let their baby leave the nest, sooner or later, you'll have to give someone else control of your business.
While some small business owners simply pass their company down to a family member when they're ready to leave, others make the decision to sell it to another entrepreneur. This can be a smart decision when the right buyer comes along, but you'll need to do a lot of planning and preparation before you sign that contract.
Roger Murphy, president and CEO of business brokerage Murphy Business and Financial Corporation, said that the biggest problem potential sellers have is that they aren't fully prepared to sell their company yet.
"They have to look inside themselves and decide ... why they want to sell and what to do after," Murphy told Business News Daily. "Then it's a matter of, is your company ready to be sold?"
Murphy noted that, much like selling a house, everything needs to be in order and squared away before you can sell your business. Your financial reports, books and records need to be in good shape, as a buyer will likely use your finances as the basis for the price of the business. Murphy also said that any contracts your business has, such as a retail space lease or agreements with third-party vendors, need to be valid and up to date. [8 Do's and Don'ts of Selling Your Business]
If you meet these criteria and do decide that you're ready to sell, Murphy recommended taking a look at your own role in the business and determining how far the company is from being able to be run without you.
"If business rotates around the [current] owner ... the new owner will have problems with how the business is going to transfer and continue," Murphy said. "When you're selling, downplay your role and back out from having it be so dependent on you. Extract yourself from the day-to-day [operations]."
In a Business Know-How article on the subject, author Tensie Homan said that doing your due diligence and educating yourself about the sale process is the best way to ensure that you and your buyer are both getting the best deal.
"You'll need to become ... educated on the numerous tactical complexities of the business sale process," wrote Homan, who authored "Beat the Exit Bubble: The Ultimate Guide for Exiting Your Business" (Execute on Strategy, 2013). "Before buyers begin to ask questions, perform your own presale due diligence on your business. View your business through the eyes of a potential buyer to identify impending issues and arm yourself with detailed facts about the business. Sellers who can answer detailed questions with facts and data ... instill confidence in buyers and make the due diligence process easier."
When you're ready to sell, here are a few online resources that can help you make the process simpler:
Business valuation service. Most business owners don't have an accurate idea of what their business is worth, Murphy said. A valuation by a third-party company can be a strong negotiation tool when discussing price with potential buyers. Free services like BizEquity and the newly launched Valuations.com, which provides a graphic-rich report with interactive charts about a business's value in less than 30 seconds, are a good place to start to get a general idea of what your company is worth. For a fee, a professional appraiser can give you a more exact value. You may also want to consider getting your business's credit score through an organization like Dun & Bradstreet to prove that your company is in good financial standing.
Business broker index. While it's possible to list your business as "for sale by owner," Murphy warned against going through the sale process alone. A trusted business broker can help you maintain confidentiality about your sale, connect you with well-qualified buyers and perhaps most importantly, allow you to continue running your business without worrying about the stress of selling, he said. Sites like BizBuySell and the International Business Brokers Association (IBBA) have broker listings so you can find the one that's right for your company.
Professional services search engine. In addition to a broker, any business owner looking to sell will likely need the help of professional legal and accounting firms. If you don't currently have a relationship with an attorney or accountant, or would prefer to find one who specializes in business sales, use search tools like Rocket Lawyer and CPAdirectory to locate a professional in your area.