Selling a business can be daunting, especially if you don't have the proper direction. Without a clear action plan, the process can quickly become overwhelming and chaotic, leaving you feeling lost and unsure of what to do next. However, by organizing the strategy into concrete tasks, you can help keep priorities in order and ensure that important things don't fall through the cracks.
Understanding the business-selling process is crucial, as missing steps can lead to prolonged negotiations, lower sale prices, or fraud. Thankfully, there is a standard process to follow, whether selling privately or through a broker, with specific milestones to achieve. To fully understand how the process will unfold for your business, it's essential to assess your current situation.
Checklist for Selling a Business
When you are ready to sell your business, make sure you have a professional team of advisers on hand to help. Here are some key people to consider:
Accountant
An accountant can help you with the financial aspects of selling your business, ensuring that all taxes are paid in full and that there will be no nasty surprises regarding the sale.
Business Broker
A broker will help find potential buyers for your business, so they need to know as much about your company as possible to market it effectively.
Lawyer
Lawyers are essential when it comes time to sign legal documents like contracts, confidentiality agreements, etc. Your lawyer should also be able to advise you on any potential tax issues or liabilities once they've been disclosed during due diligence (more on this below).
Valuation Expert
A valuation expert will thoroughly assess your company and its intellectual and intangible assets. This is essential information for potential buyers who need to know what they're getting into.
Clarify Your Reasons for Selling
Selling a business requires careful consideration. Make sure that your business is the right choice for you and your family. If you need clarification on why you wish to sell, take some time to reflect before continuing; this will help ensure you make the right decision.
Check Agreements, Business Licenses and Contracts
When it comes to selling a business, there are many issues you need to deal with before you can close the deal. The following are some things you should do before you begin the process:
1. Check Agreements: Make sure that all contracts are up-to-date, including any leases or contracts with suppliers or customers. Also, check agreements with employees and the terms of any employee benefits.
2. Check Business Licenses: Ensure all current and up-to-date licenses, especially if local or state laws regulate your business. If your business is a corporation, make sure that your corporation has filed its annual report with state authorities.
3. Check contracts: Make sure you have all the arrangements for the assets you're selling. For example, if you're selling a building, make sure it has a mortgage or other debt with an associated note.
Prepare Your Documents and Finances
Selling a business is not just about getting the right price for the company, it's also about being organized and prepared.
While you are selling, it is essential to have your financial documents in order, including the following:
Financial Statements
The financial statements are the most important document you must prepare when selling your business. The buyer will rely on them to make an informed decision about whether or not to purchase your business and how much they should offer.
Legal Documents
All legal documents about the sale of your business must be in order before you start negotiating with potential buyers. These include all agreements, contracts, leases, licenses, permits, etc., relevant to the sale process. Before negotiating with potential buyers, you should also have all necessary approvals from government agencies like the fire department or labor department.
Tax Documents
Make sure you have all the necessary tax-related documents from the past three years, including tax returns and W-2s, as well as all federal, state and local business licenses. If you are selling a corporation or limited liability company (LLC), make sure you have the appropriate resolutions authorizing the sale.
Business Documents
Business Documents include things like your company's Articles of Incorporation, Bylaws, Minutes, Forms and Policies, IRS Forms W-2 and 1099 (as needed), and copies of any contracts or agreements with customers, vendors or partners.
Government Notifications
When you are selling your business, there are certain steps you must take before you can close on the sale. These include notifying some government agencies about your intentions and paying any applicable taxes and fees. The following is an overview of what you need to do:
The IRS – You must inform the IRS about your intent to sell by filing Form 8594 with your tax return. You must also file Form 8594-C if you are selling stock in your company or receiving a distribution from an employee stock ownership plan (ESOP). This form is filed with Form 1099-B from your broker or from the ESOP trustee if no broker was involved.
State Tax Agencies – Each state has its requirements for notifying them of your intent to sell a business, but most require that you file Form SC-100 with their agency within 30 days after filing with the IRS. In addition, most states require that you pay estimated taxes based on the gain expected from the sale before filing this form with them.
Intellectual Property Documents
When you sell a business, the transfer of intellectual property is just as necessary as the transfer of tangible assets. The buyer needs to be able to use your company's name, trademarks, service marks and trade names for their business activities. You should also make sure that any software licenses are transferred to the new owner so they can continue using your systems and software.
Review Insurance Requirements
When selling a business, the buyer's insurance coverage must meet or exceeds your current coverage. You want to ensure that all of your assets are protected and covered in an emergency or accident. If any changes need to be made, it is best to do so well before the sale, so there is enough time for the buyer to get insured with their new policy.
Make a List of Business Assets
Take time to write down everything that makes up your company's value. This includes things like physical assets (office equipment, vehicles), intellectual property (copyrights, patents), goodwill (good reputation), and more.
Create an Inventory
An inventory list is necessary so that you and the buyer understand what items are included in the business. This can include furniture, office/factory equipment, raw materials, and product inventory, which are business assets.
Review Rules and Regulations
Selling a business involves many legal considerations, including tax issues and regulations governing the sale of businesses. Before proceeding with the sale, you'll want to ensure that you're familiar with these rules and regulations.
Have a Professional Conduct a Business Valuation
If you're thinking of selling your business, it's wise to have an outside professional conduct a valuation. This will give you the most accurate idea of your business worth and help you determine the price range for sale. You can hire an outside expert or use software to perform this task.
Create a Brand Overview
Creating a brand overview of everything your company does and who it does it for. It is a road map to help potential buyers understand your business model, and it should include descriptions of products and services, target markets, strategic goals and competitive advantages.
Plan Your Work with Prospective Buyers
Before you start working on your business, it's important to plan ahead and think about what you want to achieve. If you don't have a clear idea of what you want out of selling your business, then it's easy for things to get out of control when buyers start coming around and asking questions. You can end up answering questions that need to be more relevant or talking about things that aren't important.
Make Sure the Buyer Obtains Business Permits and Licenses
The buyer should obtain all necessary licenses and permits before purchasing a business. Sellers should make sure that the buyer has received the following:
General license
Tax registration
Health permits
State-issued occupational licenses
Liquor license
Lotto license
Reseller’s license
Zoning and land use permits
Health department permits
Notify Employees
The other important step in selling your company is letting your employees know about the sale. This can be an awkward conversation, but they must understand what's happening and how it affects them. Let them know if they'll have new bosses or if they'll lose their jobs after the sale goes through. If possible, try not to leave anyone out of the loop — employees who aren't aware that their jobs are at risk are more likely to jump ship before closing if they feel like they're being mistreated or left out of the loop.
Prepare Succession Agreements
If you have children or other heirs who are actively involved in the business, make sure they understand the terms of their employment and how they may be affected by the sale of the company. If they are not involved in running the company, make sure they understand their rights to compensation if they are asked to leave after the sale takes place.
Create Confidentiality Agreements
You should create confidentiality agreements for both you and your buyer, and this will prevent them from sharing information about the business or buying process with other people.
It is also vital to create non-disclosure agreements between you and your seller. This can protect you from lawsuits if the seller shares confidential information about the business with another person who uses it to compete against you.
Prepare Closing Documents
Here's a checklist of the essential documents you'll need:
The Purchase and Sale Agreement
The purchase and sale agreement is the primary legal document that governs the transaction and sets out the terms of the deal.
The Indication of Interest
Once you've sold your business, potential buyers will want to know whether they have a strong chance of winning their bid. The indication of interest is a document that lets you know how interested they are in purchasing your business. It usually includes information about who they are and why they're interested in buying your business. You can then use this information to decide which offers are serious enough.
The Letter Of Intent (LOI)
The Letter of Intent (LOI) is a document that provides the basic terms and conditions of a proposed transaction. The LOI is often used with an option agreement to give the buyer time to perform due diligence before closing the transaction. Both parties should sign an LOI, but it does not necessarily require an attorney's signature. In some cases, it may be advisable for an attorney to review the LOI before it is executed.
Sign the Closing Documents
The final steps in the business sale process are to sign the closing documents, have them notarized, and then close the business bank accounts.
Final Thoughts
There is no guarantee that you will find someone interested in your business. However, with proper planning and luck, you should be able to attract a serious buyer. We hope this checklist helps you accomplish your goals of selling or transitioning your business successfully. We wish you the best of luck.
FAQ’s
How do you determine the value of a small business?
There are many ways to determine the value of a small business. Some people use historical data to forecast future earnings, while others rely on comparables from similar companies to estimate future performance. Many investors rely heavily on past performance when making their investment decisions.
What are the five selling strategies?
The Five Selling Strategies are:
1. Identifying Needs and Wants
2. Making a Positive Impression
3. Establishing Trust with Customers
4. Handling Objections and Closing Sales
5. Following Up with Customers
Is it hard to sell a business?
No, it's not. It's easy to sell a business.
But the key here is to know what you're doing and understand how to market your business for sale. If you don't have that knowledge, then yes, it cannot be easy.
What is the fastest way to sell a business at the highest price?
The fastest way to sell your business is to hire a professional business broker. A good broker can help you determine what your business is worth and can put you in touch with buyers interested in purchasing your type of business.
What are the four common sales mistakes?
Here are four common sales mistakes you should avoid:
1. Not having a plan
2. Not following the plan
3. Not being accountable for results
4. Not following up with leads