June 24, 2024
Selling a business that one has dreamt of and setting up for a major part of one’s life is hard. But at times, it becomes essential to let it go and opt for better opportunities to grow. Irrespective of the scale of the business, numerous factors need to be considered before selling it. In this blog, we will include all the factors from scratch to end regarding the sale of a small business.
The first and foremost phase is to prepare the business, which revolves around the following steps:
The net asset value of the business needs to be evaluated accurately, and this can be done using multiple approaches such as asset-based, income-based, market value, and discounted cash flow approach to form a transaction opinion.
The financial statements reflect the true picture of business with trust and transparency amongst the potential buyers. Without accurate statements, only speculations can be made and it is hard to determine the actual value of the business to move ahead with its sale.
Even if the business is small, it should be appealing, which can be achieved by enhancing the customer base. Diversification of products and services also plays a crucial role in this case. The debt of the business should be effectively reduced to low to attract potential buyers.
Operational tasks include day-to-day tasks, which should be automated to the maximum level possible. This enhances the overall effectiveness and efficiency of the business and can also be achieved with the integration of the latest technology.
Lastly, when planning small business for sale, the business needs to meet all the legal requirements to be considered a suitable option for a potential buyer. All legal disputes or litigation should be resolved before pitching up the business to any potential buyer.
Everything should be done at the right or appropriate time to get the maximum outcome out of it. The following factors determine the right time for sale:
The current market condition or projection of the industry is significant. To better understand the market, it is always suggested to observe the ongoing mergers and acquisitions.
The country's economic condition also contributes a lot. In a stable economic environment, more people will be interested in investing, which boosts the chances of a good return. It is never suggested to hurry in making such decisions, as they might backfire in the future.
Readiness for Transition:
Business owners often neglect this factor, but it is highly important. The concept of emotional detachment and transition should be accepted with a plan to spend life after this sale. In case of retirement, an alternate source of earning should be in place for peace of mind.
Tax Implications:
The net proceeds of the business are directly affected by its tax implications. Favourable tax implications should always be analysed so that tax liabilities can be reduced to a minimum level to maximise profits.
The next section of this blog introduces you to the selling phase of any small business. The following steps are the key features to be adopted to pitch small business for sale at the maximum possible price:
Marketing is the only way to reach the right audience, and it is also your chance to get the best potential buyer within no time. The best way is to outsource this task to professionals, as they can devise the best marketing strategies by highlighting core elements without any disclosure of sensitive information.
This section revolves around a thorough understanding of the potential buyer. Prepare your pitch highlighting the business's strengths, such as steady growth, a strong customer base, and a diversity of products and services. It is important to align your business goals with their needs.
It can never be the case that the business gets sold on your first-ever demand; rather, be prepared for continuous negotiations. The key skills required during this process include patience and flexibility. One must know the bottom line so that the interests of business owners are protected.
Lastly, prioritise the sale of small businesses according to your financial needs. If it is your only source of income, then it must generate enough funds to be invested further.
The last segment of selling a small business is closing the sale. It includes two major segments such as:
All the necessary documentation should be completed beforehand as it will build trust and transparency between both parties. The financial aspect is crucial as large payments cannot be made there and then so the seller must give ample amount of time to the buyer to complete the purchase. It is the time when the seller must ensure all the terms and conditions are completed.
People promise a smooth transition at the beginning of such deals, so this is when it can be fulfilled. During this time, training should be provided, and new owners should be introduced to key clients to build up their relationships. The aim should be to help businesses reach the same heights even if you are no longer part of them.
A business setup requires blood, sweat, and tears, which does not mean that it should never be sold out. Rather, a smart move is to move on with newer opportunities to grow in life. The sale of a small business requires a wholesome process to be followed and completed. Whether it includes financial aspects or the overall appeal of the business when a business owner decides to sell then, he has to undergo four phases discussed elaborately in the article. The owner must take time and reflect on his decision before jumping into it, as it is not just a piece of cake.
