There can be several reasons why an entrepreneur would want to sell a business. Often, it is the only source available to raise a substantial amount of cash. A CNBC/Financial Planning Association survey found that 70% of small business owners' wealth is invested in their businesses and only 30% is outside their firms. Business owners may also want to cash out so that they can start a new venture. Whatever the reason, selling a business at the right price is never easy. It is advisable to go about the entire process in a systematic and well-thought-out manner.
Stock sale or asset sale
This is the first issue to be decided. Usually, an asset sale would be preferred by the buyer as the firm's equipment, fixtures, goodwill and licenses would be transferred while the long-term liabilities would remain with the seller.
Buyers would also be protected from any claim being raised for a prior period as the legal ownership of the company would remain with the original owner.
A stock sale, on the other hand, would transfer legal ownership in the business to the buyer. This is a simpler way to sell a business as it would not be necessary to transfer each asset separately.
Remember that the transfer of a sole proprietorship, a partnership, or a limited liability company cannot take place through a stock sale as these entities do not have stock. Business entities of these types can be sold by the transfer of partnership or membership interest.
Don't hide anything
Be honest about the strengths and weaknesses of your business. The buyer will appreciate getting all the relevant information directly from you.
A prospective buyer will definitely carry out some research on your company. If this throws up some facts that you have suppressed, you will find it difficult to explain the reason for not providing details earlier.
In fact, the buyer could become suspicious that you are not being truthful about the real condition of your business and find it simpler to walk away.
Take care of intellectual property issues
If your business has any patents or trademarks to its name, it could serve to enhance its value. But registering a patent is a time-consuming and expensive process. If you want to take advantage of this factor, you will have to start the exercise well ahead of the targeted sale date. Initiating the process of registering a trademark has another advantage. You may discover that you inadvertently infringed on the trademark of another company. It is necessary to sort this out before putting your company up for sale.
Arriving at a selling price is a very subjective matter. It is best to get a reputed professional business appraiser to carry out a valuation exercise. Try and get one who is knowledgeable about your industry. While the buyer may not agree with all the figures in the valuation report, it will definitely provide a starting point on which to base the final sales consideration.
Selling a business takes time
Cashing out of a business is a time-consuming exercise. It is also at least as complicated as setting one up.
If you are in a hurry to sell, it will have a negative effect on the sale price. You should prepare your business for sale by identifying the issues that a buyer may raise and taking the required corrective action. Above all, ensure that your books of accounts are updated and in order.