In our first blog in this two-part series on how to sell your business as a small business owner, we discussed general preparations and pricing strategies to keep in mind when considering selling your business, along with a short Selling a Business checklist.
In the second part of this series, we break down the different methods of selling your business so you can choose the one that best fits your preferences. We’ll cover everything from selling independently and how to sell a business quickly, to understanding the role of business brokers and the difference between asset and stock sales.
You’ll also learn about the various types of buyers, from local entrepreneurs to strategic acquirers, and how to effectively market your business for a successful sale. Finally, we’ll highlight key post-sale steps to ensure you’re ready for your next chapter.
Selling Your Business Independently
The first question to ask yourself after you’ve decided to sell your business is: should you try to do the whole process on your own or bring in a business broker to help you?
If you're someone who enjoys being hands-on and wants to keep control of the process, selling a small business by owner might be the right choice for you. Going this route can save you brokerage fees, however, it does come with its own set of challenges as it may require significant time, effort, and expertise.
Here are the steps you’d want to consider if you’re selling your business on your own:
Steps to Sell Your Business Independently:
- Prepare Financial Records: One of the first things you’ll need to do is compile all of your financial statements, tax returns, and any operational documents that potential buyers will want to review. This transparency will show buyers that your business is well-organized and ready for purchase.
- Set a Price: Pricing your business appropriately is key. You can either use tools like a business valuation calculator or consult with a financial advisor or a financial planner who specializes in helping business owners to help you determine a fair price. Setting the right price is crucial to attract serious buyers and avoid turning them away.
- Market Your Business: If you want to sell your business quickly, effective marketing is a must. You can advertise your business for sale on online platforms or industry-specific networks where potential buyers are likely to be looking. Word of mouth and local advertising are also great ways to find interested buyers.
- Negotiate and Close the Deal: Once you’ve attracted some offers, it's time to negotiate the terms and finalize the sale. A well-written contract will ensure that both parties are protected. This is where having a lawyer or financial professional to help you with the legalities is essential.
Pros of Selling Independently:
- You have full control over the entire process.
- You save on brokerage fees and commissions.
- Direct communication with buyers can foster better relationships.
Cons of Selling Independently:
- It can be time-consuming and complex, especially if you have no prior experience in selling businesses.
- You might have limited access to a wide network of potential buyers.
- Without professional guidance, the legal and financial risks could be higher.
For those wondering how to sell a business quickly on your own, it’s helpful to know that it may involve meticulous preparation and targeted market research to find the right buyer.
However, keep in mind that this approach might not be suitable for every situation, especially if your business is large or complex. That’s where working with a business broker may be a more suitable option…
Working with Business Brokers to Sell Your Business
For those who’d rather leave the heavy lifting to professionals and potentially get a higher price and better deal when selling your business, working with a business broker could be the right step. Business brokers specialize in connecting sellers with buyers and handling the transaction from start to finish.
What Business Brokers Do:
- Evaluate Your Business: A good broker will help you determine a fair market value for your business by assessing your financials and the overall business condition.
- Market Your Business: Brokers have a broad network of potential buyers, which means your business will be marketed to a much wider audience than you could reach on your own.
- Handle Negotiations and Paperwork: Brokers take care of the complex negotiations and paperwork involved in the sale, ensuring all contracts are in place and protecting your interests.
When starting the process to find the best business brokers in your area, it's also important to research brokers who have experience in your industry. This makes it more likely they will know good targets who would want to acquire your business. Ask for references, check their track record of successful sales, and compare their fees.
Benefits of Working with a Broker:
- Access to a much larger pool of potential buyers, both local and international.
- Expert negotiation skills to help you secure the best deal possible.
- Stress reduction, as brokers handle most of the logistical and legal aspects of the sale.
Though working with a broker involves paying fees, their expertise can often lead to a quicker and more profitable sale, making the cost well worth it for many business owners.
Asset Sales vs. Stock Sales
When selling a business, one of the first decisions you'll need to make is whether to sell certain assets within your business or shares of your business. This will of course depend on the type of business you run, as you may not have any physical assets but perhaps a service or a digital offering.
The way you structure your sale will have significant implications for taxes, liabilities, and the overall sale price.
What Are Asset Sales?
An asset sale means you’re selling specific assets of your business—like equipment, inventory, intellectual property, or real estate. In this case, the buyer does not take on any of your company’s liabilities, making it a popular option for smaller businesses.
What Are Stock Sales?
On the other hand, a stock sale involves selling shares of your company. The buyer will take on full ownership of the business, including its liabilities. This type of sale is more common in larger businesses or corporations.
Tax Implications of an Asset Sales vs. Stock Sales:
- Asset Sales: Sellers may face higher tax rates because they’ll pay capital gains taxes on the sale of individual assets.
- Stock Sales: These are often more favorable from a tax standpoint, but they come with the risk of transferring liabilities, which might deter some buyers.
It’s important to carefully consider both your tax implications and your goals when choosing between an asset or stock sale.
Selling to Local or Strategic Buyers
When looking for buyers, it helps to consider the two main types of buyers that often emerge: local buyers and strategic acquirers.
Local Buyers:
Local buyers are typically individuals or small companies with a vested interest in your community or industry. These buyers may be looking to expand their own operations or simply acquire a business they are familiar with.
To attract local buyers, advertise your business through community networks, local business listings, or regional business brokers. It’s also a great idea to have a strong message about why your business is a valuable addition to the local economy.
If you live in the Tampa Bay area, our financial advisors in Tampa may be great guides as they might know other local business owners who could be interested in buying your business.
Strategic Buyers:
Strategic buyers are larger companies or individuals looking to acquire businesses that align with their existing operations. They’re often willing to pay a premium because they see your business as a way to expand their own operations or gain a competitive advantage.
Tips for Attracting Buyers:
- Use a strong pricing strategy to ensure your business is seen as a valuable investment.
- Highlight your business strengths, such as customer loyalty, market position, or proprietary technology.
- Tailor your marketing to appeal to either local or strategic buyers, depending on your target.
By understanding your target buyer, you can position your business in a way that maximizes its appeal, increasing your chances of closing a deal that benefits both parties.
Post-Sale Considerations
Once your business is sold, the journey isn’t over. Post-sale planning is just as key to ensure you’re prepared for what comes next.
Key Post-Sale Steps:
- Address Tax Implications: Selling your business has tax consequences. Consult with your tax advisor or financial advisor ahead of time so you’re prepared and can find ways to mitigate taxes where possible.
- Plan for Reinvestment: Whether you plan to reinvest your earnings into a new business venture, retirement savings, or other financial goals, having a solid plan in place can help you move forward confidently.
- Smooth Leadership Transition: Especially when selling to strategic buyers, it’s important to have a plan for transitioning leadership and maintaining business continuity.
Lastly, take time to reflect on your next chapter and seek advice on how to best manage the financial windfall from selling your business.
Selling your business is a big decision, but choosing the right method for you can make all the difference. Careful preparation, planning, and seeking professional guidance are key to maximizing your returns and ensuring a smooth transition. Our financial advisors are happy to guide you - click here to schedule an initial consultation today.
