Selling Your Business, Step by Step

Icculus Resources
February 10, 2022

No matter why you intend to sell your business, as sellers, your aim is a fair price tag and low complications on your small business sale. After all, it was your blood, sweat, and tears that got it to be worth an acquisition in the first place. As long as you put in the time and effort to do your due diligence, your business sale should be a seamless process. 

Here’s what you need to know before, during, and following a small business sale: 

Before the acquisition

Starting a business is often a labor of love, but selling your business is about the bottom line.

You'll want to hire an accountant or M&A advisor before you even begin negotiating a sale to get the most out of any deal. They can help you analyze the financial aspects of your business, including expected future earnings and revenue streams.

Here is what you need to work on before selling your business:

Set your acquisition goals early. Before starting the process, figure out what you want from an acquisition so you have something concrete to work toward.

Keep your finances in order. Make sure your books are in good shape with accurate, up-to-date financial statements and projections for future growth.

Hire or find M&A advisors. You'll need at least one who understands mergers and acquisitions on a fundamental level and knows how to negotiate on your behalf. Also, find an advisor specializing in businesses like yours and knows the market inside and out. If possible, hire one who has made successful exits from similar companies themselves.

Identify and understand your business's worth. This is where it really helps to have an expert on hand since they can do an objective valuation of your business using hard numbers rather than intuition.

The in-between selling process

Keep in mind that your business has NOT been sold yet, which also means you shouldn’t lose sight of your current business performance. The key is to be attentive and compartmentalize your role as a soon-to-be business seller and a business owner. 

Once you've had an offer, the next step is to ensure your business plans and objectives are still in place. You should also ensure your business performance still stands in terms of revenue targets, profit goals, and hitting KPIs. If your numbers have been slipping, this is the time to get back on track.

You'll need to negotiate the terms of the Letter of Intent and work closely with your advisors. The LOI outlines the basic terms of sale, but it's not a legally binding contract. 

The lawyers will then draft a final agreement (the "purchase agreement") signed by both parties. The purchase agreement will contain details about:

  • The purchase price and payment method 
  • How liabilities are dealt with
  • How assets are dealt with 
  • Restrictions on what you can do after the sale go through
  • A list of warranties you make about your business (financials included) 

After the acquisition

Congrats! You just made your small business sale. But what now? Remember the keyword at the start of this article: Preparation. This is a crucial element throughout the entire acquisition process. In this case, it helps you determine what to do with the sale, which is the following: 

Ensure you have a plan in place following your small business sale. Selling your business is just the beginning of a new phase of life. Make sure you have a plan and vision for what to do next because this will help you navigate through the transition period post-sale.

Understand your risks and options.  Once you've decided to sell, it's essential to understand all your risks and options. Do your due diligence and consult with your advisors to avoid being blindsided by issues like tax implications and capital gains tax.

The sale gives an opportunity to diversify your investments and help prepare for retirement, so manage it accordingly. Get professional advice if needed. Otherwise, you should be well equipped for your next business venture or be set for a well-deserved retirement. 

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