Your micro-entrepreneurial business is a product, and it can be sold like anything else. If you’ve developed a large customer base for your micro-entrepreneurial business, you can get a lot of money for it because investors prefer to buy successful companies, and successful companies have loyal customers.
When the time comes to sell your micro-entrepreneurial business, follow this seven step plan.
Step one: Put together your team
Selling a business (or buying one) can be a complex transaction that will need an accountant, an attorney, and maybe a broker (a business broker).
Accountant: The accountant helps to prepare the financial data that your buyer will need to assess the financial condition of the business. The accountant prepares financial statements, such as a balance sheet (to show the assets and liabilities of the business), the income statement or profit and loss statement (P&L, for short) for the business, and any other necessary financial documents.
In addition, the accountant helps you with any potential tax impact of the business (such as figuring out if you will have any tax on the gain from the sale of the business).
Attorney: The attorney prepares all the legal documents for the transaction, such as the contract for the sale of the business.
Business broker: A business broker can help you find a buyer. A business broker is similar to a real estate broker in that he or she can find a buyer and receive a commission, which is typically a percentage of the final purchase price of the business.
Step two: Determine why you’re selling the business
If your decision is to sell your business, then any buyer will ask you why. Make sure you know. The most common reasons are as follows:
Moving on to new ventures.
You simply don’t have it in you to keep the enterprise running. Maybe you’re tired of running it, bored, or are looking for a different routine.
If you’re selling your business because it’s no longer profitable, have a good explanation for the potential seller or take steps to make it profitable. After all, if the business can’t show a profit, then it makes a sale more difficult. Confer with both your accountant and the business broker on strategies to make the business more attractive to buyers.
Step three: Time the sale
Selling your business isn’t a decision that happens that morning after you have your breakfast. You should plan long before you actually put the “For Sale” sign on your front door. Some advisers tell you to plan at least a year before you decide to sell.
Waiting a year gives you enough lead time to prepare the business for an optimal sale. You can work on increasing the revenue, decreasing expenses, and preparing your business records for when you will need to show them to prospective buyers.
Step four: Determine the value of your business
Decide whether you will get paid for the full value of your business or whether the amount will fall short. Considering how long and hard you worked to build to your business, you should do what you can to figure out the full worth of your business (business valuation). Your accountant can help you with this step.
Step five: Prepare documents for the sale
Put together all the necessary documents (financial statements, tax returns, and so on). For income statements and tax returns, give three years’ worth for the buyer to review with his or her advisers. Also provide information regarding any partners, suppliers, vendors, and such.
You should provide a summary for business activities and your mission statement so the buyer sees what kind of philosophy drove your business during that time.
The buyer of the business may also have documents. A buyer will commonly ask the seller to sign a non-compete agreement so that the seller doesn’t re-enter the market with a new business in the same field as the buyer.
Step six: Market your business
If you’re selling your business to a trusted buyer, such as a key employee or a family member, then selling or marketing your business isn’t an issue. However, if you need to find a buyer, you can market your business yourself or get a business broker to help advertise that your business is for sale.
In the same way a real estate broker can be of great assistance, a business broker is equally helpful (maybe more so because a business is more complicated than a house).
Although you only need a single buyer, keep in touch with all prospective buyers just in case a sale isn’t consummated with the initial buyer. Find out if the buyer is qualified for financing or decide if you want to help the buyer finance the transaction.
If you want to do the financing, the buyer will make monthly payments to you. This arrangement can work out well if you are heading into retirement and need that type of cash flow.
Step seven: Know what to do after the sale
After the sale is made, many entrepreneurs continue in a consulting capacity with the new owners to make sure the transition goes well. Find out if the buyer requests your assistance.
In addition, discuss with your accountant how to handle the gain from the sale of the business in terms of federal, state, and local taxes. Some type of estimated tax payment may need to be done.