Graystone International


How to Sell Your Business

A large majority of small business owners have never sold a business.  While they may have worked years or decades cultivating an idea and successfully growing a business, this is just something completely new to most of them and that’s OK.  While the process may seem a bit overwhelming and complex at first, it will help if you first understand the complexities.  Every transaction is different, but here is a list of basic elements to selling your business that you need to know.

  1. Preparing to Sell

If you are considering selling your business, preparation should start at least a year before. You want to have time to do everything possible to increase your customer base and reduce any non-essential expenses.  By doing this well before putting your business on the market, the buyer will see a history of growth and reduced expenses.  This history is important to a buyer and the longer the history the better.  It is one thing to explain to the buyer your plan to increase your customer base and reduce expenses, but it is a totally different thing to show that your plan has been successful.

  1. Business Valuation

Know what your business is worth.  Pricing it too high will result in the loss of potential buyers and pricing too low will result in a loss of profit when sold.  As a starting point, it is always a good idea to engage a valuation professional to help put an accurate valuation on your business based on your earnings as well as comparable trends in your industry and many other variables.  While there are many valuation experts you can hire, this is also something that a well-seasoned Business Broker can help you accomplish.

  1. Preparing the paperwork

While this is not intended to be an inclusive list, the following items are typically required in most transactions.

  •  As a minimum, you will need to gather at least three years of tax returns, profit and loss statements, and balance sheets.  The buyer and the buyer’s lenders will often require this and the quicker you can get them this information the quicker you can close. 
  • Have any documentation regarding your lease of the premises or purchase of the premises, as this will be important to any buyer as a part of the up-front due diligence.
  • The buyer will need a detailed list of any assets or equipment that will be part of the purchase as soon as possible.
  • You should prepare a detailed contact list of vendors, utility providers, and any other contacts that might be needed for evaluation purposes during the due diligence period.
  • Make sure all your various insurance needs are covered and that those documents are ready to provide.
  • Pull together organizational information including Certificate of formation, Certificate of Standing, company by-laws, or any other documents that provide vital information about regulating your business
  1. Finding a Buyer

Know upfront that selling a business is not a quick process.  A business sale may take between six months and two years or more. Involving a business broker can help reduce the time it takes you to successfully sell your business by helping put together a marketing strategy and implementing that marketing campaign.

Once you have prospective buyers:

  • Make sure the potential buyer pre-qualifies for financing before giving out too much information about your business.
  • The potential buyers should sign a nondisclosure and confidentiality agreement to protect your information and keep it confidential.
  • Both the seller and buyer should sign a Letter of Intent, as soon as possible, to make sure that their interests align and that the basic terms of the transaction are agreeable to each party.
  • Next, try to get the Purchase Agreement signed as soon as possible. This agreement is much more detailed than the LOI and will legally bind both parties to the transaction.

From the time the Purchase Agreement is signed until the closing of the transaction, the information exchanged between the seller, buyer and the lender can be very detailed and complex and is often an onerous task, but necessary, nonetheless.

While the above information is by no means all that will be required or requested, it will help ensure you get off to a speedy start.



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