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Contingencies For Selling Your Small Business

January 11, 2023
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You’ve worked hard to get your business off the ground, but for some people, there comes a time when they decide to sell. Perhaps you’ve outgrown the small business that you decided to start a few years ago, or maybe you identified a new opportunity that you wish to pursue. In the United States, about 20% of small businesses decide to sell at some point. When you conclude it is time to sell your company, it is essential to understand how the process works and the contingencies to keep in mind.

Selling Your Small Business: The First Steps

The first steps to selling your small business start even before you decide that you want to sell it. You need to have everything in place and financial reports ready. While you run your business, these are already factors that you need to focus on, so they should not be something new that suddenly comes into play when you decide you want to sell.

Make sure all your accounting systems are up to date and that you fully utilize your client relationship management software. This makes it easier to compile reports showing history metrics and sales data related to the business. These are elements that potential buyers will likely want to see before they make any decisions about buying your business.

Another thing to consider are blind spots that may be present in your business. As the name suggests, these are spots that you may not yet have noticed, but they can cause problems during the selling process or even bring down the price offered for your business.

Meet with a wealth partner who is experienced in financial planning and management. When you get a professional consultant to analyze your reports, they will often be able to point out any of these blind spots they recognize in your business.

Decide On a Selling Process and Value

Some people may decide to sell their business to someone they know. This could include an employee who has worked for the company over the past years or even a family member. If you do decide on this particular selling process, note you will likely not get your business’s actual worth in fees.

Several strategies are generally used to identify the value of a business — and you can use these formulas to determine the right selling price. Total sales are compared to the calculated value of expenses, owner wages, and the cost of the goods sold. You'll then generally calculate the annual profit and multiply it by 2.44 to get a value you can work with.

It is generally considered a good idea to approach a third-party buyer to get the most out of the sale. These buyers are usually ready to invest in a business. Depending on your company's performance and the reason for selling, buyers might be willing to pay you the full value or even more to acquire the existing business you have built over the years.

Conclusion

Selling a business is undoubtedly not easy, as it takes more than simply listing the company and finding a buyer. Numerous contingencies and other elements need to be considered as well as to whom you want to sell. Consider the factors discussed above to help you better understand what to expect once you decide to sell your small business. Contact one of our experienced advisors at IM Wealth Partners to find out how we can help you.