Buying a Business

A Small Business Owner's Guide to Preparing Your Business for Sale

If you own a small business, it’s important to have an exit strategy in place. Whether you plan to retire, pursue another venture, or simply move on, there will come a time when you need to prepare your business for sale. However, selling a business is a complex process that requires careful planning and execution. In this guide, we’ll provide a complete guide for preparing your small business for sale.

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Start with a Valuation:

The first step in preparing your business for sale is to determine its value. You can do this by hiring a professional business valuator or by using an online valuation calculator. A valuation will give you an idea of what your business is worth and help you set a realistic asking price. It will also help you identify any areas of your business that may need improvement before you put it on the market.

Related Reading: What is a Business Valuation vs. an Appraisal?

Get Your Finances in Order:

Prospective buyers will want to see your financial statements, including your income statement, balance sheet, and cash flow statement. Make sure your financial records are up to date and accurate, and be prepared to answer questions about them. You may want to hire an accountant or financial advisor to help you get your finances in order and prepare for due diligence.

Make sure to prep these financial documents:

  1. Income statement
  2. Balance sheet
  3. Cash flow statement
  4. Tax returns for the past three to five years
  5. Profit and loss statements
  6. Accounts receivable and payable reports
  7. Inventory records

Clean up Your Operations:

Buyers will also want to see that your business is operating efficiently and effectively. This means you’ll need to clean up any operational issues, such as outdated equipment or software, poor inventory management, or inefficient processes. Make sure your systems and processes are streamlined and running smoothly before you put your business on the market.

These are some common documents you will want to prepare:

  • List of assets and equipment
  • This should include a detailed description of each item, its condition, and any existing leases or loans.
  • Customer and supplier contracts
  • Buyers will want to see your current contracts and know if they can be transferred or terminated upon the sale of the business.
  • Employee agreements and benefits information
  • Provide a list of your current employees, their roles and responsibilities, and any benefits they receive. Buyers will also want to know if there are any employment contracts in place.
  • Tax returns and financial statements

Related Reading: Types of Equipment You Can Finance for Your Business Growth

Make Sure Your Contracts are in Order:

Buyers will want to see that your business has valid contracts in place with key employees, suppliers, and customers. Review your contracts and make any necessary updates to ensure they are legally binding, up to date, and in good standing. This will give buyers confidence that they are acquiring a stable and secure business.

Make sure to keep your employees in the loop about the sale of your business. This will help alleviate any concerns they may have and ensure a smooth transition for both them and the new owner. After all, if your key employees are willing to stay with an ownership change, this can be greatly leveraged during your sale.

Work with Professionals:

Preparing your business for sale can be overwhelming, but you don’t have to do it alone. Consider enlisting the help of a business broker, attorney, accountant, or financial advisor to guide you through the process. These professionals can help you with everything from valuation to due diligence to negotiating the sale.

Business broker: A business broker specializes in buying and selling businesses. They can help you find potential buyers, market your business, and negotiate the sale.

Attorney: An attorney can help you with legal aspects of the sale, such as drafting contracts and reviewing any potential liabilities.

Accountant: An accountant can help you prepare your financial statements and provide tax advice for the sale.

Financial advisor: A financial advisor can help you create a plan for managing the proceeds from the sale of your business.

Sell Your Small Business With Confidence

Selling a small business is a complex process that requires careful planning and execution. By following the steps outlined in this guide, you can prepare your business for sale and maximize its value. Remember to start with a valuation, get your finances in order, clean up your operations, make sure your contracts are in order, and work with professionals. With the right preparation and guidance, you can successfully sell your small business and move on to your next adventure.

Check out our podcast to hear how Baton is helping small business owners sell their businesses!

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