You've had a good run with your business, and now it's either time to retire, cash in, or move on to a new venture. It's time to sell your company – but how? Just as you had to follow a process to start your business, there's also a process for selling it. While the process may vary slightly based on the business type, its assets and liabilities, and other factors, the following tips should provide you with a general idea on how to sell a business.
Create an exit strategy
Even if you're not going to sell right away, it's smart to have an exit strategy or succession plan in place. Think about under which circumstances you will close or sell the business and how you might go about doing so. You may need to consult with a lawyer or business consultant to ensure that your plan addresses all potential complications and tax liabilities. By creating an exit strategy in advance, you'll be better prepared when the time comes to sell your business.
Find a buyer
You can't sell a business without a buyer. In some cases, buyers will approach you with buyout offers. In others, you'll need to find a buyer. You could approach competitors or work with a business broker who will list the business for sale and serve in much the same way as a real estate agent. Also, you may want to make use of online business marketplaces.
Prepare for due diligence
Serious buyers need time to fully understand your business, it's true value, whether it remains profitable, and what makes it tick. Prepare to produce financial documents (statements and projections) and answer all kinds of probing questions.
Create a sales agreement
Prepare a sales agreement that clearly and thoroughly covers all aspects of the transaction including: the names of all parties involved and the business name; assets being sold; purchase price; inventory included in the sale; how the business will be run prior to closing; contingencies; non-compete agreements; closing fees and who will pay them; closing date; terms of the agreement; payment terms; and other details related to the sale. Your business broker can help you draft a sales agreement as can a business lawyer. In addition, sample sales agreement forms can be purchased and modified to suit your needs.
Transfer ownership
Depending on the nature of the sale, transferring ownership can be done in several ways including an outright sale, a gradual sale, or even a lease agreement. With an outright sale, the new owner takes over the business upon closing the sale. With a gradual sale, the owner offers the buyer long-term financing. A lease agreement is more like a temporary sale of the business. For example, if you need to take a few years off to pursue a graduate degree and have a prospect interested in leasing the business for a few years, a lease agreement might be an option to consider.
Maintaining records
Once you sell your business, transfer ownership, and settle all loose ends such as paying debtors and filing your last tax return, your job isn't completely over. You may need to keep employment, tax, and other records related to your business for several years.
Closing a business
If you're not selling the business but closing it, close the business according to the guidelines set forth in your articles of organizations. If you are a sole proprietor, you can make the decision on your own but if your business is a partnership, LLC, or corporation, the co-owners must also be involved. Make sure to draft a written agreement between partners, file all required dissolution documents, and cancel all licenses, permits, registrations, and business names. When closing the business, you must also follow all employment and labor laws and resolve your financial obligations such as indicating on your tax return that this is the final return for the business and notifying (and settling with) creditors and lenders.
Selling a business is a complex transaction with specific requirements based on the business type, its structure, type of sale, and other factors. Just as you launched your small business with expert help, it's smart to get professional assistance as you sell it.
Read more about Getting Out (by SBA.gov)
Selling Your Business in 2012 (by NY Times)