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BizReport : Internet : June 16, 2017

Expert: How to sell your small business

Opening a small business is exciting and filled with opportunity, but not everyone is cut out to be a small business owner. Here's what to expect - and some pitfalls to avoid - when buying and selling a small business.

by Kristina Knight

Identify the type of company you want to buy

"The buying process starts with the prospective buyer identifying what type of company they're interested in and looking through relevant listings posted for-sale online. During this phase, the buyer should also work on organizing their financials and producing a personal financial statement that they can present to sellers and lenders. This statement should include a list of all the buyer's assets and liabilities outline their net worth, income, and credit rating. This is also a good time for buyers to determine how much of their own cash they are prepared to invest in the acquisition," said Bob House, President, BizBuySell. "For sellers, it's important to give yourself plenty of time to prepare your business for sale. In fact, we suggest spending about 6 to 12 months readying your business for the market. During this phase, the seller should work on organizing and improving their financial records, growing their customer base and improving the company's online presence."

House adds that buyers should conduct a thorough investigation of the company and its overall health, working with an accountant, attorney, and business broker.

Determine the value of the business

"Next, sellers will want to determine the value of their business to make sure they don't price it too high or too low. Work with a third-party appraiser to secure a detailed valuation of the business. This will bring credibility to the asking price and can be leveraged during the negotiation process," said House. "From there, a seller must decide whether they want to sell the business on their own or work with a business broker. Although working with a broker costs money, doing so allows the seller to focus on running the business and brokers can help guarantee they're getting the highest possible sale price."

Qualify the buyer

"Once a seller or broker lists the business, it's time to qualify interested buyers. When meeting with potential buyers, ask some simple questions to quickly gauge how serious they are about purchasing the business. Questions to ask include how long they have planned on buying a business, how they plan on financing the business and how much money they have available for a down payment. If a contact provides vague or unconvincing answers, it's best not to invest too much time and effort into keeping the conversation going. Once you have determined the seriousness and financial capabilities of a prospective buyer, have potential them sign a nondisclosure confidentiality agreement to protect your business information," said House.

Start negotiating

"Once you settle on a buyer, it's time to begin the negotiation process and settle on a final sale price. During this phase, the buyer and seller should put together a purchase agreement that covers how the buyer intends to pay for the business. Most buyers utilize a variety of payment methods to complete the sale, each of which needs to be clearly discussed and identified. If the seller is financing part of the purchase price, the repayment schedule should also be described along with collateral requirements and interest details. Once the final sale agreement is signed, the seller should begin the process of transitioning the business and it's day-to-day operations over to the new owner," said House.

Tags: BizBuySell, sell a small business, small business, small business tips, SMB tips, SMB trends

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