From enlisting a broker to tracking a reliable accounting agency, selling a small business isn’t as easy as it sounds. Namely, there are many legal and financial snares that can leave ruined or even worse, land you in jail!
Luckily, there are at least 8 smart ways in which you can protect yourself when selling a small business.
Why are you selling in the first place?
We don’t mean to be inquisitive but you can be sure that a prospective buyer will pop the usual question: “Why are you selling the business?” The number of real reasons is endless, from retirement, across illness, to pure boredom.
However, you have to explain your reasons thoroughly, so buyers don’t become suspicious about the legality of the deal. If the business wasn’t profitable recently or you had trouble attracting shoppers, feel free to share this info, as it might prove useful to the new owners.
Determining the true net worth of your business
It’s important to know the exact net worth of your business, so you can place an adequate price tag on it. If the company is priced too high, then you will make a profit but it can take months before you find the right buyer.
On the other side, too low of a price means that the buyer will be there in an instant but you will have lost thousands of dollars. There are certified business appraisers that can help you with setting the price if you haven’t had previous experience in selling a small business.
The appraiser’s detailed explanation will act as a gauge for the listing price. The final price will include all company assets, from present employees to real estate.
Sell the business when the time is right
Apart from setting the price right, it’s important when you decide to sell the business. Entrepreneurs who decide to sell their business on a whim are most vulnerable to fraud. When you are pressed for cash, you can easily be tricked.
Ideally, the decision to sell your small business should be reached at least a full year before listing the company. The more time you have to prepare for the sale, the smoother will the entire process run. The preparations for the sale include, among other things, revising the firm’s financial records and expanding the customer base.
Be prepared for all eventualities
Hopefully, the sale will go as planned: you’ll get your money and the buyer will get an established business they can run for many years. However, in a small number of cases, things go south, so it pays off to be ready for such eventualities.
In order to minimize the chances of a dispute or better yet, avoid them altogether, we recommend you speak to an experienced litigation lawyer who has profound knowledge on the matter. He or she will help prevent a small business dispute ruin the reputation of the company.
Finding the right buyer
We hope that you realize by now that it’s not all the same to whom you sell your small business. First off, finding the ideal buyer means that you have to get in touch will all interested parties.
This way, when one buyer starts to falter or gives up on the purchase, you can call the next interested businessman right away.
When negotiating the price, always give the buyer leverage, so you establish a good rapport with them. Once you strike the deal, make sure the sign all the paperwork, as a handshake is still not admissible in court.
Marketing the sale
The best way to draw in a serious buyer is to advertise the sale of the small business in the correct manner. Of course, by “correct” we mean “online.”
On average, it takes anywhere from 5 to 7 months to sell a business, so you’ll have to be patient. Apart from direct marketing, you can try to market the company itself.
Once folks hear about your successes in the market, buyers will start lining up themselves.
Should you hire a broker?
Many entrepreneurs face the dilemma of whether it’s wise to hire a broker. If you have been able to navigate market fluctuations for years on end, then you are perfectly able to sell the business without a broker’s help.
The only advantage of hiring a broker is that they save you time and energy. On the other hand, their commission will eat into your profit margin. When you can trust the buyer (because you know them or they are a family member), then you definitely don’t need a broker.
What to do with the money?
Even if you ran a highly profitable small business, your wealth increased gradually. On the other side, after you sell the business to someone else, you will receive a load of cash in a single transaction, which is not something you are used to.
All this money is enough to corrupt the most diligent of entrepreneurs, so we suggest hiring a financial consultant to help you divide up all that cash. For example, now is the ideal timer to invest in a retirement fund. Also, you’ll need advice regarding the tax rates of selling a business.
The 8 steps listed above are pretty standard when it comes to protecting yourself when selling a small business. These precautions ensure you lower the risks and maximize the profits.