A concise guide to selling a small business
For the past few decades you’ve work hard to start and grow your business. But now you’re ready to retire. Your children, if you have them, may not want to continue the family business. However, that shouldn’t mean that you should just liquidate the assets, close the doors and disappear to a beach in South America.
After all, you can continue to make money off your business for years instead of just closing up shop. In this guide, you will learn a high-level overview of how to sell your business.
Why should I sell my business and retire now?
For Baby Boomers, there is no better time to sell their business and retire than right now. Every year since 2008, millions of Baby Boomers in America have been retiring. Many of them are small business owners who have either passed along the family business, sold their businesses, or closed their doors forever. Since the start of the COVID-19 pandemic, there has been a spike in the number of Baby Boomers retiring.
The market for new opportunities is on fire. Since the global economic turmoil that the pandemic caused, many people have been looking for their next big change. Right now it is a business seller’s market and there are droves of buyers actively seeking out businesses to purchase from Baby Boomers ready to retire.
How to sell a small business
There are a multitude of ways to sell a small business. For every different buyer and seller combination, there is a different way to sell a small business. Before you get started, there are a number of things to do in order to get your business ready for a sale.
1. Get Your Accounting in Order
Whether you sell via a broker or directly to a buyer, you will need to have updated and verified financial data for your business. This should go back a minimum of three years if not many more. A buyer will want to see P&L, balance sheet, EBITDA. Although you don’t need to necessarily be audited by one of the Big Four accounting firms, you should
2. Get the Word Out
A key consideration of getting the word out about selling your business is if you would like to keep it secret up until the sale. If you are not worried about people such as clients and current employees finding out that you plan to sell your business, then it is advantageous to tell your network and openly share it online on business listing sites such as BizBuySell.com.
However, if you have reason to keep the business sale a secret up until the acquisition, then you need to take a different more covert approach. Firstly, you may want to consider getting a business broker.
3. Consider Getting a Business Broker
If you choose to sell your business via a broker, you have myriad of businesses to choose from, each specializing in their own niche market. As of 2021, there are 3,935 Business Brokers businesses in the US—an increase of 3.1% from 2020.
Business brokers do charge for their services, which are typically negotiable. Rates and minimums differ by state and even by region within the state. For example, in Southern California, where we are based, business brokers usually charge 10% with a $10,000 minimum. In Northern California, you’ll find brokers charging around 12% with a $15,000 minimum. As with most professions, the better and more experienced the broker, the higher the fees will be.
What are the benefits of a business broker?
Just like when you use a broker to sell your home, a business broker acts as a shield between the business owner and prospective buyers. This serves to keep your identity and your business’ identity confidential. The broker will field all inquiries and vetting prospective buyers so you do not have to waste your time on buyers that are not serious or qualified to buy your business.
Speed to Sale
Business brokers know the market and are typically connected to a network of prospective buyers. A good business broker will understand your local market and help accelerate the sale process. Your goal is to sell your business and retire with as little headache as possible.
You have run your business for many years and you are a subject matter expert on what you do. But are you an expert in selling businesses? Maybe. But unless you’ve engaged in the business of buying and selling businesses, a broker will be able to help you negotiate terms that will be most beneficial to you. They are incentivized to make sure the deal actually goes through and doesn’t collapse right before the finish line.
This is especially important if you’re going to be working with your buyer after you sell your business to help with the transition. You don’t want negotiations to sour your relationship, so your broker is the third-party that helps you avoid that.
4. Engage with a prospective buyer
If you are going the journey alone, you will spend a considerable amount of time engaging with prospective buyers. They will want to know all of your business financials that we discussed above. If a buyer thinks that there are too many missing or murky metrics, they may get cold feet and back out. For this reason it is critical to have accurate reporting of your businesses numbers so that both parties can build mutual trust.
5. Should I stay or should I go?
Although you may want to retire immediately after you sell your business, the buyer may request for you to stay on for a period of time after the sale. This can be a few months or even a few years. Aside from an initial transition period, you should expect to be compensated for your time and services. This is especially critical for businesses where the owner has much of the knowledge of operations, client relations, and especially personal brand.
If your business relies mostly on your personal connections to succeed, it would be less attractive for a buyer if you wanted to get out of Dodge the moment the money is in the bank.
6. Dealing with the Buyer’s Deal Team
When you sell a business, you need to prepare for a lot of procedure including legal requirements that need to be met. You will need to have counter parts to a team of lawyers, insurance companies, lenders and many other parties involved in the business sale. You need to be aware of the technicalities and fine print of the sale.
A business broker can deliver value here by keeping track of all important procedures so nothing falls through the cracks.
Selling a Small Business Is Easier than You Think
If you are interested in selling your small business in Southern California, reach out to us to start a conversation. If we feel like there is a fit, we can discuss next steps. If not, we’ll gladly give you neutral advice and point you in the right direction.