business plan for sale

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Good company » ask the board, how do i prepare to sell my business.

In this edition of “Ask the Board,” Bob House and Luba Kagan of BizBuySell explain how to prepare a small business for sale.

If you could create your own fantasy Board of Directors who would be on it? CO— connects you with thought leaders from across the business spectrum and asks them to help solve your biggest business challenges. In this edition, we ask two experts how to get ready to sell a business.

There are several reasons small business owners decide to sell their companies — they want to move to another city or state, sales are down, they’re looking for a new challenge or it’s time to retire.

Whatever the reason, once you decide to sell, you can’t just hang up a “for sale” sign and wait for the offers to come rolling in. Selling for the right price takes time and preparation.

Luba Kagan, manager of business development and strategic partnerships at BizBuySell answers…

The more time you take to properly assess, prepare and market your business for sale, the higher the probability of maximizing the transaction’s success.

Deciding to sell

The reason you’re selling your business is the most fundamental question you need to answer — for yourself and for buyers — since it’s likely this will be one of the first questions a potential buyer will ask. Define why you are selling and what you would consider a successful outcome. Assemble a team of advisors when you are contemplating a sale, including your family, trusted friends and the professionals (accountant, lawyer, business transaction advisor), etc.

Preparing for sale

When a buyer is evaluating your business’s price/value, they likely will use standard industry methods such as multiples of earnings and sales to arrive at a purchase price. If you’re thinking of selling in three or so years, start reporting your earnings with this in mind. Yes, you may have to pay more taxes now, but if your business is getting bought at 2-3x earnings, it’ll likely be worth it.

Increase profitability

Investors want to buy profitable businesses, so look for places where you can reduce costs and create efficiencies. Then consider creating additional revenue streams. (See more below.)

Establish processes

Creating and documenting regimented processes, which enable the company to function without your involvement, puts buyers at ease. You need to convince potential investors the business will continue to run smoothly long after you’re gone.

Cultivate a loyal workforce

New owners don’t want to deal with employee turnover. Experienced workers bring stability and help generate sales and profits.

Identify and highlight tangible and intangible assets

As you get closer to your targeted sales date, list and price all your business’s physical assets, including furnishings, fixtures, equipment and inventory. Also, consider the value of your intangible assets — things like contracts and agreements, customer relationships, brand recognition and more. Every non-material asset that contributes to your company’s profit line has the potential to boost its price.

“Be” the buyer

Price is important to the seller; terms and conditions are important to the buyer. You may be able to get a higher price if you provide the terms and conditions the buyer wants.

Put yourself in the buyer’s shoes. Do whatever is possible to enhance your company’s value. Make sure your financial records are current and accurate. Is your store/office/restaurant/facility looking its best? Tie up any loose ends. Buyers prefer businesses that come with low risks and high rewards.

Pivot to areas of opportunity to position your business for future growth.

Bob House, president, BizBuySell

Create an exit plan

If you're looking to sell your business, read on for a guide on crafting an exit plan.

Bob House, president of BizBuySell answers…

Create a timeline

In “normal” times, three years is a reasonable horizon to prepare for a sale. It’s enough time to build profitability and allows you to get ready for the transition. If you want to get the maximum return, you need to show growing revenues and profits over several years.

Effects of COVID-19

But these aren’t normal times. Depending on your circumstances, you might want to move up your timeline. The coronavirus pandemic changed everything. If you can’t pay your rent, a three-year timeline won’t work.

In general, buyers don’t want to take on risk. Currently, buyers are looking for deals, and you’re unlikely to get top price. But if you can wait, three years from now, it’s likely the pandemic will have bottomed out.

Once you remove the uncertainty from the market, prices will go up. And once the economy starts growing, it will be a better environment for selling a business.

Identifying areas of opportunity

Take a look at your business. Some companies are thriving, temporarily. Hardware stores, for example, are benefiting from homeowners stuck at home undertaking home improvement projects. Since that won’t likely last long-term, is now a good time to sell?

Pivot to areas of opportunity to position your business for future growth. What trends will stick? In the food business, some struggling companies have found success pivoting to developing ghost kitchens, adding curbside pickup and outdoor dining, and selling groceries in addition to meals.

However, if you look at the current Economic Average Report from Yelp, it shows nearly 100,000 businesses have permanently closed. If you’re in an “endangered industry” and you’re still solvent, you may want to sell now.

Finding buyers

Most business sellers are baby boomers. Three years from now, the older millennials will be in their 40s eager to strike out independently. These buyers will be looking for businesses with proven cash flow. They want to buy businesses they can improve and grow the ROI.

Consider the following points moving forward:

• Hold on. If you can wait it out, the business sales environment will be much improved in three years.
• Pivot. Find ways to add revenue to your business; create new products/services; find new sales channels.
• Adapt. Identify what has worked for you during the pandemic and decide which of those practices will continue to add value to your business.

Bottom line

To prepare for an eventual sale, you need to grow revenues, improve profit margins and gain a competitive edge. Then, when it comes time to sell, your business will be more attractive to buyers and command a higher price.

You will need some specific documents during the sale process, including:

• Non-disclosure confidentiality agreement
• Personal financial statement form for buyer to complete
• Offer-to-purchase agreement
• Note for seller financing
• Financial statements for the current and past 2-3 years
• Statement of seller’s discretionary earnings or cash flow
• Financial ratios and trends
• Accounts payable and accounts receivables aging reports
• Inventory list with value detail
• List of fixtures, furnishings and equipment with value detail
• Asset depreciation schedule from tax return
• Supplier and distributors contacts
• Client list and major client contracts
• Staffing list with hire dates and salaries; employment agreements
• Organization chart
• Photos of business
• List of opportunities for improvement with revenue/profit projections for each
• Business formation documents
• Corporate or Schedule C tax returns for past 2-3 years
• Building or office lease
• Equipment leases and maintenance agreements
• Business licenses, certifications and registrations
• Professional certificates
• Insurance policies
• Copies providing ownership of patents, trademarks and other intellectual property
• Outstanding loan agreements
• Description of liens
• Products/service descriptions and price lists
• Business plan
• Marketing plan and samples of marketing materials
• Employment policy manual
• Business procedures manual
• Other documents unique to your business

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1. Identify Your Reasons for a Sale

• 2. Decide on Timing

3. Get a Business Valuation

4. hire a broker.

• 5. Prepare the Documents

6. Find a Buyer

7. handle the profits, the bottom line.

• Small Business

7 Steps To Selling Your Small Business

Selling a small business is a complex venture that involves several considerations. It can require that you enlist a broker, accountant, and/or an attorney as you proceed.

Whether you profit on the venture will depend on the reason for the sale, the timing of the sale, the strength of the business' operation, and its structure.

A business sale will also require much of your time and, once the business is sold, the need to determine some smart ways to handle the profit. The seven considerations below can help you build a solid plan and negotiate a successful transaction.

Key Takeaways

• Once you've decided to sell your business, identify why you want to sell and make sure that it's ready to be sold.
• Take the time needed to determine the value of your business and consider hiring a business appraiser.
• Decide whether you want to hire a business broker or negotiate the deal yourself.
• Once you find a good buyer, there are a series of financial screenings and other steps that need to be taken to keep the process moving.
• Work with a financial professional to determine how you want to invest or otherwise use the money you make from the sale of your business.

You've decided to sell your business. Why? That's one of the first questions a potential buyer will ask.

Owners commonly sell their businesses for any of the following reasons:

• Partnership disputes
• Illness or death
• Becoming overworked

Some owners consider selling the business when it is not profitable , but this can make it harder to attract buyers. You must consider whether your business can attract buyers, its state of readiness, and your timing.

What Makes Your Business an Attractive Opportunity?

There are various attributes that can make your business attractive to buyers, including:

• Increasing profits
• Consistent income figures
• Appealing profit margins
• A strong customer base
• A major contract that spans several years

2. Decide on the Timing of the Sale

Timing is everything. And that includes the time it takes to get everything ready to sell your business.

Once you've made the decision to sell, prepare for the sale as early as possible, preferably a year or two ahead of time. The preparation will help you to improve your financial records, business structure, and customer base to make the business more profitable and a transaction more attractive.

These improvements will also ease the transition for the buyer and keep the business running smoothly. 

Selling a business involves a lot of legwork, discussions, and negotiations. If it's not possible for all of this to occur in person, use services like Zoom or Skype to hold digital business meetings with potential buyers.

Determine the value of your business to make sure you don't price it too high or too low. You can do this by hiring a business appraiser to provide you with a valuation .

Once you hire an appraiser, they will draw up a detailed explanation of the business' worth. The appraisal document will give credibility to the asking price and can serve as a gauge for your listing price .

You can also determine the overall value of your business using some key metrics. Consider evaluating your company by determining the market capitalization , earnings multipliers, book value, or other metrics.

Selling the business yourself allows you to save money and avoid paying a broker's commission . It's also the common sense route when the sale is to a trusted family member or current employee.

In other circumstances, a broker can help free up time for you to keep the business running, or keep the sale quiet and get the highest price. That's because the broker will want to maximize their commission. Discuss expectations and marketing approaches with the broker and maintain constant communication about their progress (or lack thereof).  

Even if you decide to sell your business to a close family member or employee, don't rush the sales process. However, if you need a relatively quick turnaround, hire a business broker to speed up the proceedings and keep things on track.

5. Prepare the Necessary Documents

Gather your financial statements detailing assets, liabilities, and income as well as tax returns dating back three to four years. Review them with an accountant. Dig up any other relevant paperwork such as your current lease. In addition, develop a list of equipment that's being sold with the business. Create a list of contacts related to sales transactions and supplies.

Make copies of these documents to distribute to financially qualified potential buyers.

Operational

Your information packet should also provide a summary describing how the business is conducted, an up-to-date operating manual, and information about roles and employees.

In addition to gathering needed documentation, you'll also want to make sure the business is presentable. Any areas of the business or equipment that are broken or run down should be fixed or replaced before meeting solid prospects or prior to the sale. 

A business sale may take anywhere from a few months to years. This includes the time you take to prepare for the sale all the way to the closing, according to SCORE, a nonprofit association for entrepreneurs and partners of the Small Business Administration (SBA) .

Finding the right buyer can be a challenge. Allow for solid, ongoing advertising to attract more potential buyers. Once you have some parties interested in your business, here's how to keep the process moving along:

• Have two to three potential buyers in the pipeline just in case the initial deal falters.
• Stay in contact with potential buyers.
• Find out whether the potential buyer pre-qualifies for financing before giving out information about your business.
• If you plan to finance the sale, work out the details with an accountant or lawyer so you can reach an agreement with the buyer.
• Allow some room to negotiate, but stand firm on a price that is reasonable and reflects the company's future worth.
• Put any and all agreements in writing. Potential buyers should sign a nondisclosure/ confidentiality agreement to protect your information.
• Try to get the signed purchase agreement into escrow .

You may encounter the following documents after the sale:

• The bill of sale , which transfers the business assets to the buyer
• An assignment of a lease
• A security agreement , which has a seller retain a lien on the business

A business broker often charges an average of 10% for businesses under $1 million. While that may seem steep, bear in mind that the broker may be able to negotiate a better deal than you can arrange on your own.

Now that you've sold your business, it's time to figure out what to do with the profit that you've made. The first instinct may be to go on a spending spree, but that probably isn't the best decision.

Here are a few things you may want to consider:

• Take some time—at least a few months—before spending the profits from the sale.
• Create a plan outlining your financial goals; focus on long-term benefits, such as getting out of debt and saving for retirement .
• Consult with a tax professional to learn about the tax consequences associated with the sale and sudden wealth.
• Speak with a financial professional to determine how you should invest the money so that you can meet your short- and long-term goals.

How Do You Sell a Franchise Business?

You'll need to work in conjunction with your franchiser, as they will need to determine if the new buyer is appropriate. Plus, that new buyer will need to sign a franchise agreement with the franchiser.

There are a variety of fees and rules associated with owning or selling a franchise. These can be found in the FTC's compliance guide .  

How Do You Sell a Business Idea?

It's possible to approach a company with a business idea, but first, do your research, prepare a presentation, and find potential targets. While some business plans are best protected with a patent, others can be secured by getting a potential company you want to work with to agree to a non-disclosure agreement.

Can I Sell a Small Business Without a Broker?

Many people would like to avoid the average 10% commission that a business broker may charge. But the expense may be negligible compared to the risks of selling on your own. If you decide to go it alone, prioritize selling to a buyer you know, make use of the advice of experienced, retired owners and executives, and use all the internet resources available, such as those offered by the Small Business Administration, or the National Federation of Independent Business (NFIB) .

How Would I Sell Just My Share of a Business?

Selling your share of a business to your partner(s) is a common ownership transfer method, particularly for small businesses. Have an agreement in place with your partners ahead of the sale to help smooth the transition. This can increase the likelihood that both the remaining and exiting partners benefit.

What Does Selling a Business Cost?

If you go through a business broker and your business is under $1 million, the broker's commission is likely 10% to 12%. Other fees that can crop up include attorney fees, marketing fees, and the costs of making any cosmetic or more substantial upgrades to your business so as to make it more sellable. There are also fees that may come up if you are transferring a lease to the new owner of your business.

Selling a business is time-consuming burden and, for many people, an emotional venture. A solid reason for selling or the existence of a hot market can ease the burden. So can the help of professionals, such as business brokers.

It may also be possible to obtain free counseling from organizations such as SCORE. Your local chamber of commerce may offer relevant seminars and workshops, as well.

When all is said and done, the large sum of money in your bank account and your newfound free time can make the potentially grueling process of selling your business worthwhile.

Small Business Chronicle. " How to Calculate the Selling Price For a Business ."

Berkshire Business Sales & Acquisitions. " What To Look For When Choosing a Business Broker ."

Inc. " What You Should Know About Working With Business Brokers ."

Score. " Selling Your Business ."

Federal Trade Commission. " Franchise Rule Compliance Guide ," Pages i, 24-119.

International Franchise Association. " Royalty Fee Requirement Definitions ," Page 1.

Small Business Chronicle. " How to Sell Ownership in a Partnership ."

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