How to Sell a Small Business and Get Out of Debt

When you are in debt, you may have the need to sell your small business. In order to sell a small business for a reasonable price, you need to prepare well in advance and undertake careful planning. You will need to understand your business value and its competitive position in the market.

Never underestimate the buyers’ knowledge of your business. Expect them to complete a thorough investigation before they sign the agreements. This is why careful planning is required. You will need to clean up your financial statements, update tax records and ensure all accounting records are current.

If you are planning to sell in the future, then you may want to improve your marketing efforts for increased sales. This way, you can request for a higher selling price for your business. Try to avoid the common mistakes that business sellers make during their rush to get out of debt.

Here are eight tips on how to sell a small business and get out of debt:

1. Think before you sell the small business

You should have clear business and financial objectives to sell your small business. You do not want to deal with a seller’s remorse after the business has been handed over to the buyer.

Of course, you also do not want to hang on to the business because you are waiting for the perfect moment to sell. Take time to think about the decision to sell your business before you start preparing. Be confident that this will be the right move for you and your business in the future.

2. Find a good business lawyer to represent your  sale

Once you have finalized your decision to sell the small business, you want to find a business lawyer that is experienced in commercial agreements. This lawyer will help in the negotiation, proper validation and the final agreement of the sale of your business.

The lawyer will represent you in all legal matters involving your business as he/she can offer expert legal advice. Ensure to find a lawyer that is recognized, dependable, efficient, practical, cost-effective and highly knowledgeable on business matters.

3. Ensure the valuation of the business is precise

When you sell a small business, you must think about your company’s growth over the years since you built it from the ground up. However, you have to remember that prospective buyers don’t think the same. They are making a calculated decision to buy your business and will look at your business from a different perspective.

This is why you have to determine the real value of your business by calculating its worth. You can do this by using price versus earnings, future revenue potential, past revenues, and assets accumulated after liabilities. Use a method that is understandable for the buyer when they ask for your business valuation.

4. Update all financial records and vendor contracts

This is a crucial step if you want to avoid any legal issues in the future or even end up with a failed business sale. The first documents that the buyer will request are the financial statements such as profit and loss statements, balance sheets, bank statements, tax returns, vendors contracts, and so forth.

When you sell a small business, you should have all these documents ready for the buyer to review. The presentation and maintenance of your documentation will be the first impression of how you manage your internal operations, so make sure these documents are well-organized and clearly reflect a well-managed business.

5. Think about the business exit strategy

Once all your paperwork is in order and you have finalized the decision to sell your small business, you then need to put all this information into a business exit strategy. This strategic plan will be your guide to sell your business efficiently and at a reasonable price.

The exit strategy will help in limiting your losses when selling a business that was not successful. The exit strategy will also capture the business valuation and offer business owners different levels of liquidation.

6. Boost sales before selling the business

If your business has been successful over the years, you may want to increase the product or service sales before the actual business sale. This way, you can ask for a higher price for your business sale and can easily justify the price. Increasing sales will automatically increase the value of your business.

7. Set the right price

It is essential to set a realistic price as buyers will be reviewing your business through a microscope. They will be looking at every aspect, from financials to processes and customer databases.

It may be tempting to set a high price considering you have built the small business from the ground up, but buyers will not consider that. They will want a fair price based on your business valuation. A realistic price will ensure you sell your business without any complications.

8. Prequalify all interested buyers

Don’t just sell the small business to the first interested buyer. Wait until you have a few buyers that are interested before you finalize the sale of your business. Take time to understand your buyers and try to find the one that will propel your business forward. Find the right buyer that will keep your customers happy.