5 Things to do if you're thinking of selling your business

By Eddie
on 11th Aug 2022
3 minutes Read
business partner - senior employee checking files

Every week, there are 3 landscaping businesses, 2 HVAC businesses, and 1 electrical services business SOLD in America according to BizBuySell’s 2021 Insight Report*.

According to the same report, there have been 148 small businesses located in the DC, Alexandria, and Arlington areas SOLD in the last year alone.

If you want the same for yourself, here are 5 steps you could take to prepare for selling your business:

1. Know your reason why

The first question a potential buyer would ask you is why are you selling your business now so it is important to be clear and transparent on this point. Most sellers put up their business because they are intending to retire. Some sell due to burnout, especially after the pandemic. Other business owners sell because they simply found something else more interesting.

2. Define your goals and needs

Knowing what you need and want from this transaction is important in finding the right buyer for your business.

Ask yourself: What are your cash needs now and in the future? Will you be selling the business for 100%? What happens to the company brand and name after you sell? What happens to the employees? How long do you see yourself staying on as a consultant for the business? Would you be willing to stay on as a consultant?

3. Organize your financials

Getting the best value for your business requires having your books in order.

Gather your business’s financial statements and tax returns from the past 3 years and review them with your accountant. Make an inventory of equipment and real estate that are being sold along with your business.

Having the right and complete documents will showcase your business’s profits and will help your buyer determine what will they be willing to pay for your business. Most buyers base their valuation on Seller’s Discretionary Earnings (SDE) or the business’s annual profit plus the owner’s perks. Small businesses with annual revenue of $1-5 million usually sell for a 2-3x multiple of their SDE and in some cases could go as high as 6x.

4. Document your standards of procedure

Having an up-to-date operating manual makes your business presentable and attractive to a would-be buyer. After all, time is money and a would-be buyer would not want to spend much valuable time on entirely figuring out how the business is conducted once they take over.

Every business has its own system of doing things from onboarding new employees to billing its clients. Have your employees document the 10 most important things they do for your business every day and ask them to list step-by-step instructions for each one. There are also free video recording and sharing services such as Loom to help them with documentation.

5. Turn your weaknesses into opportunities

No online presence? Weak advertising? Limited services? Buyers love it when they see a clear path for growth for your business. Plus, they want to be able to use the skills they have acquired from their past experience, whether that be in marketing or business strategy and apply it to the business they’re taking over. Present these weaknesses as opportunities and buyers will think your business might be a good deal for them.

If you are already thinking about selling your business, you can reach out through the contact form below.

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