5 Steps to Selling Your Small Business at Good Terms

June 4, 2016

If we look at the post-recession business-for-sale market, it has generally favored the buying side for various reasons. However, the recent trends and statistics indicate that the market is re-shifting its balance in favor of sellers, which means it’s turning into a more balanced market. The recent uptick in the small business listings gives us an idea about owners’ growing trust in the market.

Generally speaking, there are at least 3 key factors that shows improvement in the market’s overall financial health and balanced equilibrium.

  • In the first quarter of 2016, the median revenue of a small business sold has increased to $ 459,740 as compared to $ 450,000 in early 2015. Average of asking price to revenue stood at 0.85 with a median cash flow of over $ 106,000. This is an increase from $ 100,000 a year ago. This improved financials give entrepreneurs the leverage to sell their business at a better price. Businesses have not only increased their revenue but also improved profitability; as a result, the asking and sales prices have soared further.

  • The number of businesses-for-sale is showing a robust growth, not seen since 2009. Data obtained from BizBuySell.com’s quarterly insight shows that the number of small businesses listed for-sale has grown by over 12% in last one year. The increase in listings is result of many factors, like; growth in SME sector, better financial performance of SMEs and the volume of Baby Boomers reaching retirement age.

Now, we got the idea about the market’s balanced outlook, the prospect buyer and seller side, and financial health; lets coming back to our core point and discuss how to sell a business at good terms and price?

In the following, a simple and relational process of selling your business is being discussed. It will help you bargain better price and earn decent revenue.

1. Do a Comprehensive Self-Analysis:

The starting point of any selling exercise should begin with your self-analysis. In this regards, I would recommend going with three strategic analysis tools.

  • SWOT analysis
  • PESTLE analysis
  • Self-Motivation analysis

SWOT analysis should guide you on what are your strengths (as business), weaknesses, opportunities and threats. This allows you to set better price and expectations for the details.

On the other hand, PESTLE stands for analysing external environment with regards to political, economic, social, technological, legal, and environmental factors.

Self-Motivation analysis addresses the questions such as:

  1. What stage are you at in your life?
  2. How balanced is your life?
  3. How much money do you really need?

If you want to read more on the subject, here’s an article by Stephen Cunnell, a business coach and mentor. He has explained the concept of self-motivation analysis in a comprehensive way.

2. Take Advice from Friends and Family:

Selling a business is a very strategic decision that requires attention to details and comprehensive consultations. Moreover, there are many factors and stakeholders to be consulted. Therefore, it is strongly advised to get in touch with all relevant people and stakeholders.

Handling the release of information to those affected by your decision is very vital. Close family members and business partners/shareholders need to hear your decision and factors behind it as well. Therefore, you need to plan your decision after taking their advice on all key matters.

Family members need to know what you will do after selling out your business. How you will spend your time after the sale? This is followed by the assessment of amount of money you need to raise through the sale as it should be enough to finance your future needs.

On the other hand, staff and stakeholders will be concerned about financial strength, return, and their jobs. Therefore, you need to ensure that there is no massive exodus of staff once you put the business on sale. Assure your staff to discuss this HR and labour issue with the buyer in the deal.

3. Prepare the Sales Fundamentals:

Once you have taken advice from friends, stakeholders and family; the next stage is to set up your sales fundamentals. In this stage, you need to understand the key aspects of your overall value proposition. But since it’s being done for sales, you need to find key changes that you may need to bring in the near future.

To ensure that your enterprise looks profitable and attractive to buyers, introduce some key changes that may be needed but make those after consultations with the industry experts. Moreover, review key internal information and figures alongside priority facts and trends from the external trading environment. It should set the right tone for the sales process.

To do this better, you need to prepare a sales memorandum that contains brief business summary, key highlights, future development plans, asking price, terms and conditions and other important information pieces that could be of value or interest to buyers. It’s not only a standard practice but also helps in smooth selling process.


4. Use Business Evaluation Tools:

In order to prepare a perfect sales memorandum, you will have to evaluate your business value on the best professional standards. There are chances you already have a view on the value of your business but also want to have a fair price tag to support your future plans.

To ask a better price, you need to consult some business appraiser. They are experts in their field and can offer you a fair business value. Moreover since they have dealt with similar assignments in the recent past, they have an eye on the trends, hot selling points and market prices.

There is another option to determine your business value; use some business valuation tool. Here, I am listing down 5 of the available online business valuation tools to calculate the worth of your business for sale.

  1. ExitAdviser
  2. BizEx
  3. MassMutual
  4. Bridge Ventures
  5. John Hancock

5. Go to the Market:

Finally, the last stage is to move to the market for selling your business in practice. Here, you need to do few strategic things.

  • Draft the sales memorandum
  • Manage the prospect leads and start discussion
  • List your business on the online business marketplace
  • Handle the queries and build communication
  • Shortlist your buyers
  • Handle the communication; share vital information on the right time
  • Ask for the required information and discuss your concerns, if any

When you are convinced that the particular buyer is serious and offers an attractive or at least acceptable return, close the deal. However, never move fast or show your impatience, as it might send a wrong signal to the potential buyer. Therefore, take each step carefully and in consultation with your team.

Hopefully, the given suggestions will help you throughout the process of selling your business on good terms. In case of any question or feedback, don’t forget to use the comments box below.

Business & Finance Articles on Business 2 Community


Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.