How to Sell a Business By Owner
If you’re considering a business sale by owner, there are eight steps you must take to close the sale successfully.
This article explains how to uncover your firm’s value, and why you should obtain a business valuation. You’ll learn how to gather records, market your business, and how to efficiently manage the due diligence process.
Some owners decide to sell without retaining a business broker.
8 Steps for Selling Business Without a Broker
There are several reasons why a firm is sold without the services of a business broker.
If an owner is selling a company that carries a large debt load, the sales proceeds may not pay off all of the firm’s liabilities. The owner may not have cash available to pay the broker’s fee.
A sale to a family member, key employee, or a business peer may not require a broker. In this case, the buyer and seller know each other, and the sale may take far less time and effort to negotiate.
A potential buyer will want to know why you’re selling the business, and you’ll need to have an answer to the question.
1. Determine why you’re selling the business
Owners sell businesses when they want to retire, or possibly because of a health issue. Managing a business requires a huge effort, and you may want to sell in order to work less, or pursue other interests. A company sale may also occur when the owners or partners disagree about the firm’s direction.
Next, consider your company’s value proposition.
2. Understand why your business is valuable
Each of these company traits may be attractive to a potential buyer:
Competitive differentiation
Your business is seen as unique in the marketplace, and customers can differentiate between your product and the competition.
Brand awareness
Impact reports that: “the average person is exposed to upwards of 5,000 brand messages per day.” If customers know about and like your brand, they are more likely to buy your product.
Niche businesses
You focus on a particular niche, and become the preferred business in that niche. If you operate in a niche, you can target your marketing efforts to a smaller market. You’ll know your target market and do a better job at solving customer problems.
Customer experience
You make it easy to find, understand, and buy your products. The customer’s journey from finding your website to receiving your product is clearly stated.
If you can clearly state your value proposition, the next step is to find out how much your business is worth.
3. Obtain a business valuation
Find a business valuation expert to perform a valuation. These experts consider your financial track record, the industry, and the prices paid for similar businesses. The valuation will help you determine a reasonable listing price for your business.
4. Determine if a competitor could be a potential buyer
Competitors know your business well, and they have experience in the same industry. As a result, they understand the value of your business, and the potential for growth after purchasing your company.
If you’re interested in selling specific assets, such as inventory or equipment, a competitor can easily put your assets to use.
A competitor can use industry experience to market your products and services effectively. They understand the marketing messages that work, and how to move people through the sales process.
You’ll need well-organized documentation for the due diligence process.
5. Gather a complete set of records
Create a complete set of financials, which may include these records:
- Financial statements: Balance sheet, income statement, and possibly a statement of cash flows for the past three to five years
- Contracts: Employment agreements, vendor contracts, leases, and other legal agreements
- Customer lists, market research, marketing plans
You should have an attorney write a non-disclosure agreement (NDA), and have each potential buyer sign the NDA before you provide sensitive information about your business.
Have these records organized and ready for review, so that you can provide them quickly.
As the owner, you’re the individual best positioned to explain why your business is valuable. Create a marketing plan to market your company to prospective buyers.
6. Market your business
You can market your business by working your professional network, and by advertising on business sale websites.
Speak with people in your professional network. Ask business peers, attorneys and CPAs if they know of any potential buyers for your business. Attorneys and CPAs often work on business transactions, and they may be able to refer you to a buyer.
7. Qualify buyers and due diligence review
Ask each potential buyer for a personal financial statement in order to verify that they have the ability to purchase your business. The statement will list the buyer’s assets, which may include other businesses. A buyer may also provide documentation that they have financing to buy your business.
If a potential buyer has the interest and the financing to purchase your business, start the due diligence process. Organize your records and plan meetings so that the buyer can review your documents in detail.
The due diligence review includes financial, marketing, and operational details that you use to manage your business. As mentioned above, ask an attorney to write an NDA, and have the buyer sign the NDA before you share any documents.
If you provide the requested information quickly, you will keep the due diligence process on track and move the potential buyer closer to making an offer.
8. Negotiate the sale price
A buyer will analyze the sales of similar companies, evaluate industry trends, and consider other market factors.
Have an attorney review the legal documents that you provide in due diligence. These may include employee contracts, vendor contracts, and leases. Your attorney should also review all of the business sale documents before closing.
To market and sell your company without a business broker, you need a tool to manage the process. Raincatcher’s Sell By Owner program provides the resources you need to sell your business.
Use the Sell by Owner Program
Raincatcher provides industry-leading proprietary valuation resources and proven guide maps to help you prepare the business for exit and to sell your company. The program has two components:
- Prepare My Business leverages technology to educate you about various program topics. You'll complete a series of exercises, reading assignments, and much more.
- Sell My Business features our robust and integrated marketing strategies for promoting your business and finding the ideal buyer.
Use this program to restructure your business into a built-to-sell company, maximize its value, and to find the ideal buyer for your business. Contact Raincatcher to sign up for the program and start your business sale process.
