When you want to sell a business, there are a lot of important things to consider. A few small preparations and tips now can make a big difference later on in the sales process.
Tip number one: make sure you are ready to sell and be honest with yourself. Timing can be one of the most important factors in this decision.
No matter how confident one is, if a seller tries to make a deal without preparation, it can backfire.
If you’re beginning to think you may need to take more time to research or gather information, you should. You can read more about what you need to know to avoid common mistakes and sell a business successfully below.
Step 1: Figure out the Worth of the Business
To sell a business, the first step should be to figure out the worth of the business. The worth of the business is literally what the market will pay for it.
The buyer controls the price via supply and demand. The market is then controlled by the value of the things being sold.
The value of a business is a multiple of its earnings, profits measured per year. As found by https://digitalexits.com, the average price that a business sells for is “$595,000,” and “90% of business sales” are under the $5M mark.
The value is a multiple of the earnings made by the business. This number ranges from two, up to ten times. Think of it as ‘_x profit’ instead of ‘2x profit.’
When you sell with a business broker they are there to assist you through the entire sales process. From creating and negotiating the deal, to closing it. They keep your investments and company information confidential. They also help you stay on track despite all the new information one is faced with during this process.
Website Properties, offers a free evaluation. An evaluation can lead you to discover the best next steps to educate yourself on how to sell a business.
Why Get a Business Evaluation?
Evaluation helps you determine the business’ market value. It can also help you find room for improvement within your business or its sales pitch.
This makes the preparation easier to organize and assign value to the assets. A broker can assist in this process.
If a business is making little to no profits at the time of sale, its assets are the only thing dictating its value. If it is making a small profit its value is dictated by the seller’s discretionary earnings. The Seller’s Discretionary Earnings are the sum of total sales and owner’s wages.
After subtracting the cost of the goods or services sold on the site, and any other expenses. Since there can be many costs between businesses there can be many variables in this calculation. If it is making a large profit, the value will be a multiple of the “EBIDTA.”
As you may have guessed, EBIDTA stands for several things. Earnings, defined as “income or profits,”. Before, meaning “prior to,”.
Interest, a fee paid to one party as required to pay back a loan. Tax, a compulsory fee paid to an employer, state, or government.
Depreciation, the allocation of the original cost of assets, and Amortization, – the ending of a loan (by paying the entire debt owed).
Seller’s Discretionary Earnings
Let’s discuss some other factors that can affect this important number. Some things that make it go up to include the business’s profit after income tax and its non-recurring expenses. This also includes its non-operating expenses, interest expenses, the owner’s total compensation, and its depreciation and amortization.
Some things that make it go down include non-recurring income and non-operating income. When you sell a business using a business broker they can help determine the total market of a business in its entirety.
Pricing a Business for Sale
If you need to ensure a sale happens as quickly as possible, don’t ask for up-front payment. Another idea could be to negotiate the sale through a business partner or other person already within the company like an employee.
Attractive, Attractive Industries
Some industries just have a face that buyers can’t resist. Some industries that are just naturally well-loved include home and service industries, technical companies, those that involve logistics and transportation, as well as property management. After all, people will quite possibly always want homes. And the newest tech to put in them.
Bless the Internet
The internet is a highly valuable tool. It is highly accessible these days so can be a great tool to help you network.
Online resources might look like using a networking site to connect with buyers. It could also look like research in order to handle and list the sale yourself on your own terms. When you sell a business online, you have the unique advantage of the interconnectivity of the internet.
There are even specialized sites and search engines for this. The Business Broker Directory has one, which lets you narrow down your results even more.
Step 2: Sale Preparation
During the preparation phase, you’ll want to gather relevant financial statements, and take them to an appraisal with an accountant. Some records you’ll likely want or need to present for buyer’s info include:
- A quick facts sheet, also known as an Executive Summary sheet. All the most important information about the business summarized on one page.
- Security reports: what security systems are in place, maintenance logs, security staff, and records from security past.
- A site index that includes each page of the site with a brief description.
- List of any media mentions such as awards or any other publicity the site or business has gained.
- A list of all employees at the business and their records.
- List of all the programs that are a part of the site. Detailed instructions on how to run these programs.
There are several types of legal documents you may need to sell a business. Among the most important are proof of ownership documents. These will differ depending on how the business is owned.
Income information like expense or profit reports. ROI analysis (basically an analysis of how profitable a sale or other business move is likely to be.
This includes the transfer history of the site and potentially other information. Past appraisals that can help determine the true value of the site would be an example.
Any real estate that would be included in the deal as a part of the business.
Intellectual property (like trademarks or patents) that belong to the business.
Respective documents one would need to own these things. Just like you need the deed and the registration to properly sell a car.
Analysis of the customer base and cash flow of the business.
If you want to sell a business online, you need to turn all this information into a professional narrative. Then get that narrative out there where people will see it.
Marketing info is extremely important to buyers. Information such as previous keyword usage and statistics, or other SEO data, can be worth a lot.
Because of this, data like visitor statistics and competitor info can also be very lucrative. Demographics or sales history can make a big change when utilized in the right ways.
Step 3: Find a Broker or Investment Banker
Different factors can affect the sale price when selling a business. Anything from the size of the business being sold to whether the offer was unsolicited by the buyer or not. There can be many confusing variables that may make the process of figuring out how to sell a business daunting.
However, a broker like Website Properties, is likely able to help you maximize that selling price even more. A broker provides advice and guidance. An investment banker is able to approve lines of credit or loans.
A Broker for Every Price
For businesses worth more than $25 to 50 thousand, brokers like Website Properties recommend sellers seek professional help. In order to sell a business successfully, you should consider your options carefully.
A popular broker for businesses worth under $1M per year in revenue is bizbuysell.com.
A popular broker for business within the range of $1M up to $25M in revenue/year is businessexits.com.
Step 4: Create a Summary of the Business
This summary is like a profile for the business. It allows the buyer to see exactly what the business is on each level.
The document should include an explanation of what the business is, as well as its past history and current status. It’s also customary to include a collection of any other Frequently Asked Questions, (a “FAQ” for short), of popular questions about the business.
Consider what you would want to know if you were the buyer. What would you look for?
Step 5: Put the Business on the Market
Find buyers who are looking for a company. Interested buyers will reach out, ask questions, and have other needs. Meanwhile, there will be other needs to take care of as well. Other parties will need to communicate and negotiate.
These negotiations are often time-sensitive, so it is important to stay on top of all these aspects when selling a business. Be careful not to overestimate the amount of work you can do on your own all in the same time frame.
A business broker site like Website Properties is able to manage much of this process for you. Website Properties has over 20 years of experience connecting businesses. Their dedicated teams create, run, and sell sites for hundreds of clients.
Website Properties uses its private network to boost the business to a network of 25,000 high net worth clients. They work with you to find the true heart of a business and sell it directly to the right buyers.
When you sell a business, it is beneficial to find the right niche. Some specific types of business sites might sell better to certain demographics, for example. A FBA, or “Fulfill By Amazon,” run site might transition most easily to another company with a similar model.
A site specialized in lead generation, might be most compatible with a buyer whose business is already centered on bringing clicks to the site.
Sometimes a company’s needs are broad and the specific site or company does not necessarily matter at all. A broker can help match you to the right buyer. This helps circumvent that issue.
Step 6: Field Offers
Receive offers, negotiate them. A buyer should fully understand the inner workings of the business before they make their offer.
Are We There Yet?
You might wonder how long this whole process will take to complete. The median time is about 7 months. Generally, the larger the business, the longer the time frame of sale is going to be. On the other hand, a simple sale could take as few as 3 months. A more complex sale could last 12 months or longer. Before the process can be considered properly finished the following should take place:
- Business is evaluated and an exit strategy is agreed upon.
- Buyers (directed from the broker or other strategy) inquire
- The final statement and tax documents are reviewed. Letter of Intent is submitted with a down payment, if applicable.
- The LOI or Definitive Purchase Agreement is come to with lawyers
- Transactions Finalize, Deal Closes
- Final Contracts are signed after Due Diligence is passed
- This final step can take between 3-6 months.
Step 7: Due Diligence
The buyer has a period, known as due diligence, which is usually 60-120 days. This time is designated so the buyer has adequate time to be able to verify important information. This can include financial documents and validation of the payment.
Letter of Intent
The Letter of Intent is a document outline intended to help both parties understand the agreement, and formalize it. A Definite Purchase Agreement does the same thing for larger-scale agreements, like a merger between two large companies.
Why Else Should I Sell A Business with a Broker?
A broker not only helps direct but protects the confidentiality of the seller and their business. This can prevent the misuse of their information or even legal action against them. Brokers handle aspects of the sale so you don’t have to.
Other confidential information your broker keeps tabs on is your businesses’ financial data. They also protect your customer and vendor lists.
Once you’ve decided on a method to sell, it’s still important to consider what benefits a broker can give you. They position your sale in a unique light and offer advice on how to sell your business. An advisor of this kind can also help with the appraisal, marketing, negotiation, sale, and transfer of assets. This includes internet domains or other virtual assets.
Why Should I sell with Website Properties?
They also keep your information confidential throughout the entire process. Website Properties has an 85-90% success rate and has served over 500 million sites throughout the sales process.
Their customer service strives for great communication. Their fees are performance-based so their fee-only happens after the sale.
Website Properties works with sellers to create a “Prospectus”, their own special version of a summary. It’s specialized with data and stats they study after evaluating your business and its worth. Since they value safety, clients of Website Properties sign an NDA upon agreeing to their Prospectus.
Once they’ve met and agreed on the course of action with the client, they then use their proven sales process. This process funnels active buyers directly to the business sale listing via a specialized aggressive advertising campaign.
Step 8: Close the Sale
Closing the deal includes ensuring the final details are agreed upon fully, and signing the LOI/purchase agreement. Brokers assist in this process by educating both parties and helping them plan out each step of the transaction.
A broker or investment banker can offer guidance with issues on either side. Closing completes when the entire handover process has proceeded.
Upon closing the sale, congratulations! You’ve sold a business, whether it was online, via a broker, or completely DIY in your own unique way.