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Exploring topics affecting small businesses in Texas

Process of a Smooth Sale Between Buyer and Seller

Smooth business sale

Great! You’re thinking about selling a business! It may not be easy, but showing you our process can certainly take some uncertainty off your shoulders. Now you may wonder how these things happen. You might have heard that so and so’s the company was sold for 1.5 billion dollars. Well, we’re here to answer that question.

Step 1: Start by prepping early and create a selling strategy. Think about what your goal is for selling your company? What is your timeline for selling? Who would your target buyer be? It will help if you have a good idea of what you want to gain from selling the business, a picture of a sale timeline, and who you would be interested in buying your business.

Step 2: Plan your exit strategy. We recommend you start to plan your exit strategy one to two years before in advance. Using this time to create your strategy will help you prepare for the next steps. 

Step 3: Sell your business before it’s for sale. Build company focus. Potential buyers want to see a company that has a definitive focus structure. Develop a focused company cultural and financial environment your target buyer would acquire. Use this focus to improve your financial records, build your customer base, and other factors that will make your business enticing to potential buyers.  

Step 4: Consider working with a consultant that can help you assess your team and determine the weak points and where to reorganize. This will help you build your team up and work with them to match their strengths and talents to their performance standards. Remove the people who don’t fit and hire new team members to enhance and round out your remaining high-performing team members. The benefit is you are creating a top team that potential buyers would want to have run their business.

Step 5: Do your due diligence. Know what a potential buyer is going to ask for. Be sure to be prepared that easily answer noticeable trends in your company and your industry. The goal is to assure your potential buyer the business is primed to be successful in an industry that is on the uptrend. 

Step 6: Understand the value of your company. Statistics have shown that most business owners have around 80% of their net worth tied up in a business. Also, keep in mind that cash flow by itself is not the only enticement for most prospective buyers. Most buyers are looking at whether they think their business has growth potential and an opportunity for increased revenue. 

Step 7: Take time to review what needs upgrading or changing. Audit your back office, operations, sales processes, and other essential programming within your company. Now is the time to update, record, or recreate all of these. 

Step 8: Organize your documentation, including tax documents and financial statements for the past few years, and review them with an accountant. We recommend having the proof of ownership, any business licenses, payroll summaries for the past year, any outstanding accounts payable, any overdue accounts receivable, any loan documentation, lease contracts, sales contracts, profit and loss statements for the past three years, and three years-worth of balance sheets.  Include inventories, equipment, intellectual property, and any intangible assets you plan on selling with your company. Make sure all of your documentation is organized in a presentable fashion that is helpful for your buyers. 

Step 9: Leverage your strengths. What does your company do well? We suggest that you look back at the past three to five years to tell a narrative on how the business has been able to perform and the bright future it has ahead. Once doing so document those successful processes and procedures into place to ensure your business’s strengths can be handed to the next owner.

Step 10: Take stock of key customers and client contracts. Are your contracts month-to-month or shorter-term limits? This affects the value of your company. Many large companies and business buyers look at the future earning potential of the companies they consider. If your contracts aren’t long-term, you could be doing yourself a disservice. Take the time to renegotiate these contracts and have them in place before you consider selling. This provides an underlying revenue for your business. 

Step 11: Create cultural alignment. Do you have defined departments and key team members in your business? Building a more robust internal team will aid in attracting interested buying parties. Why is this important? Strong bonds internally always tend to build a stronger company and customer loyalty.  

Step 12: Set a range of your walk-away price. Based on the gathering of financial information you did at an earlier stage, you can narrow down a range of prices for your business. Business sale prices are typically driven by other companies sold in your industry, often called “comps” or comparables. Depending on the business profitability, the size of the business, the industry, the type of buyer you are seeking, and other factors this will determine the end price point.

Step 13: Boost your sales. This seems like a no-brainer, but it isn’t always as easy as it sounds. However, if you’re looking to attract buyers, boosting your sales will showcase your business’ growth potential. Start by building a more robust and diverse client base you are already in, then consider developing new markets, and finally, as we mentioned earlier, put together a stronger management team to help the business grow. 

Step 14: Determine if you’d rather use someone to help represent your business for sale or manage the sale yourself. If you do not have a determined buyer already selling your business on your own can take longer and has the potential to be more complex than working with a business representative. Business representatives to different degrees will help guide you through the sale process and interface on your behalf during the sale itself. They typically have a pool of potential buyers they can turn to which has the potential to make the process go quickly and much more smoothly. This of course comes at a cost. 

Step 15: Pre-qualify buyers. Before you even consider negotiating with a potential buyer, you should know their financial capacity and be able to gauge their interests. There are a few things you should consider when qualifying potential buyers – things like where the necessary funding to purchase your business will come from? Is the buyer capable of running your business or do they have the needed business experience? Does the buyer’s purchasing timeframe work with your selling timeframe? Is the buyer willing to sign an NDA (non-disclosure agreement)? 

Step 16: Think about what you want to do next. Do you want to stay with the company during the transition or move out immediately? Consider your options as you begin to plan for the sale. 

The harsh reality is that selling your business will never be completely seamless. However, early preparation and a plan on how you’ll be selling the business will help reduce some of the stress. We want to help. Although we actively purchase and operate businesses. We know how challenging it is to navigate the sale of your business. In order to make it easier, we’ve created a tool to estimate the current market value of your company through our Value Assessment, provided additional information on Our Process, and shared a business growth blueprint to help you build your business’s value higher before you go to sale.

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Sell my business Texas with the Tsetserra team.

The Monthly

Exploring topics affecting small businesses in Texas
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