One of the most challenging decisions you will make as a small business owner is whether to sell your company. If you choose to sell your business online, it’s important to recognize that the process can be complicated, and you may need to enlist the help of a broker, accountant, and attorney. But selling your company can also be rewarding and provide you with funds for your next venture.
This article will guide you through selling your business to make the task less daunting.
Benefits of selling a business online
There are many reasons to sell your company: being ready to retire, feeling overworked, or wanting to move on to your next venture. Whatever the reason, selling your business can be beneficial.
Explore new business ventures
With the money you earn from selling your business online, you can invest in your next venture, which may better reflect your current interests or provide new challenges.
Take time off from work
If you feel overworked, you may need to take some time off. The profits from selling your company can fund that break, so you can travel or spend more time with your family.
Pay off personal debts
You can use the profits from selling your business to pay off personal debts, like credit cards, student loans, or mortgages.
Steps for selling a business online
While every sale of a business is unique, there are a few well-established steps for selling a company that can help you find the right buyer and maximize your profits.
Step #1: Organize your financials
When you sell your business, a lot of people will look at your financial records, including potential buyers, attorneys, accountants, third-party appraisers, and brokers.
In most cases, you will need to ensure your accounting records include at least the past three years of tax returns and the following financial statements:
- Balance sheets, which share your company’s assets, liabilities, and shareholder equity at a specific point in time
- Income statements, which show your business’s revenues, expenses, and profits over a specific time period
- Cash flow statements, which provide detailed information about how cash entered and left your company during a given period
These records must be immaculate to ensure the sale goes smoothly and you receive the right price. Any mistakes or inconsistencies could raise red flags.
Step #2: Determine your business value
Business valuation refers to the process of determining the current value of a business. There are three common methods to assess your company’s value:
- The income approach values your business based on its future cash flows. Most companies are typically worth between three and six times their current cash flow.
- The market approach involves comparing your business to similar companies that have recently sold.
- The asset approach looks at the fair market value of the assets on your balance sheet.
Valuation is not always a straightforward process, so consider hiring a third-party appraiser to determine your company’s value. The appraiser will provide a realistic estimate of your company’s worth and can offer suggestions on an appropriate price for your business. The Appraisal Foundation can help you find a trusted appraiser to assess your business’s value.
Whether you choose to determine your company’s value on your own or hire a professional, it’s important to remember that the amount may not be your final sale price. Ultimately, your business is worth what someone is willing to pay.
Step #3: Consider hiring a business broker
You can sell your company on your own, especially if you’re selling to a family member or someone else you trust. But hiring a broker is the best option for most businesses because they can handle many of the details, including:
- Business valuation
- Marketing the sale
- Finding the best buyer
- Assisting in negotiations
- Managing due diligence
Brokers work on commission, so it’s in their best interest to get the best possible price for your company. In general, the higher your business’s revenue, the lower the broker’s fee. If your revenue is less than $1 million, you can expect to pay between 10 and 12 percent of the sale price. And if your revenue is $25 million or more, you’ll pay less than five percent in commission fees.
You can find brokers online through BizBuySell or Business Exits.
Step #4: Put your business on the market
One of the easiest ways to let potential buyers know you’re selling your business is to list it on an online marketplace like BizBuySell. This helps maximize exposure and allows you to connect with potential buyers online.
Once you’ve placed your business for sale, keep in mind that you will not find a buyer overnight. It typically takes between six months and two years to sell a business online.
Step #5: Find pre-qualified buyers
Not every potential buyer will be qualified. They may not have the ability to secure a loan, be ready to finalize the deal, or have the experience necessary to run the business successfully.
You can find qualified buyers by considering the following groups:
- C-Suite executives with large net worth’s who are looking to leave their corporation and buy a business of their own
- Industry peers or competitors who will recognize the value of your business and be able to improve your company
- Private equity firms, which pool money from wealthy individuals and foundations to invest in privately-held companies
Step #6: Negotiate the deal
After finding a qualified buyer, negotiate the terms of the sale, which include more than just the sales price. You’ll also want to discuss the timeframe in which the sale will be completed and whether you will stay with the business initially to aid with the transition.
If you cannot hold these negotiations in person, they can be done online through software like Zoom or Skype.
After you’ve agreed on all the details, draft a letter of intent (LOI). An LOI is a preliminary sales document that outlines the expectations of both parties. It’s nonbinding but will be the basis for the final, binding contract.
Once you and the buyer have signed the LOI, the buyer will complete their due diligence. This gives them a more detailed understanding of your business and helps ensure it’s in their best interest to complete the transaction.
Step #7: Finalize legal documents and contracts
After negotiating a deal, it’s time to finalize the sale. This process requires the following legal documents and contracts:
- Purchase agreement
- List of assets
- Noncompete agreements
- Guidelines for website and domain name usage
- Bill of sale
- Security agreement
Some of these documents could be 50 pages or longer, so you may not want to handle this step yourself. Instead, consider hiring an attorney to oversee the details and ensure the sale benefits both you and the buyer.
Once all the contracts and documents are in order, it’s just a matter of signing on the dotted line.
Selling different types of business
While the fundamentals of selling a business online are largely the same for each company, there are a few specific steps you may need to take depending on your business structure.
1. Sole proprietorship
A sole proprietorship is an extension of its owner and not considered a separate legal entity. This means that when you sell your business, the company is technically dissolved, so ownership will not be transferred to the buyer.
You can still sell your business by selling your assets, which include:
- Inventory
- Land
- Machinery
- Supplies
- Real estate
- Intellectual property rights
- Brand names
- Trademarks
- Copyrights
- Patents
The buyer will need to create a new business to house the assets, if they don’t already have a business of their own.
It’s important to note that the buyer will not assume any of your debts and legal obligations, and you will still be responsible for those.
2. Partnership
If your business is a partnership, you will likely need to sell off the assets, similar to how you would sell a sole proprietorship. It can be more complicated, though, because different partners might hold the assets.
When selling a partnership, you will need to review your partnership agreement to see what it says about dissolving the company. You’ll also need to check who owns each asset, how business equity is divided, and how profits are shared. Additionally, if your partners are not leaving the business, they’ll likely need to approve the sale of your portion.
3. Limited liability company (LLC)
In an LLC, each member has a percentage of ownership, called a “membership interest.” If you want to sell your portion of the business, you’ll have to transfer your membership interest to the buyer.
It can be more difficult to sell an LLC than to form one, but having an operating agreement in place will help facilitate the sale. An operating agreement outlines how your business runs and makes decisions, including how to handle selling your membership interest.
If you are a single-member LLC, you can sell your interest for any amount you want. Operating agreements for a multi-member LLC, however, may have rules about how much your membership interest is worth.
If your operating agreement does not discuss selling the company, check your state’s guidelines to determine how to transfer membership interests. In some cases, you may be able to negotiate an agreement with the other members or create a written agreement to transfer ownership. Some states, however, will require you to dissolve the LLC entirely.
4. Corporation
Selling a corporation mostly involves following the steps outlined previously, but there are a few different ways you can receive payment from the buyer:
- An installment sale allows the buyer to make a down payment of 20 to 50 percent of the sale price and finance the remainder.
- If you agree to a balloon payment, the buyer can delay payment for a few months or years and pay the total amount at the end of the agreement.
- A stock sale offers stock instead of cash if a publicly-traded company buys your business. This can be risky because you may have to register the shares with the U.S. Securities and Exchange Commission (SEC) or hold them for two years before selling them. Read more about Asset sale and stock sale here.
- In an employment agreement, the buyer would pay you a salary and deduct the payments as a payroll expense.
- With a consulting agreement, you would stay with the company as an independent consultant for a specified period of time.
Most corporate sales agreements combine multiple payment strategies to create a customized contract that benefits both parties.
Mistakes to avoid when selling your business
Before selling your company, it’s a good idea to understand common mistakes so you can avoid them.
Trying to sell too quickly
Putting your business on the market too soon could result in not receiving the best price. Ideally, you should spend a year or two preparing your company before selling.
Disorganized records
If your financial and business records are not organized, buyers may think you are too involved and unwilling to give up control. Disorganized records may also make it look like you’re not being transparent with how well the company is doing.
Mentally checking out
If you mentally check out of your business before the sale is finalized, your employees and potential buyers will notice, which can reflect poorly on your business’s perceived value. Instead, stay engaged throughout the process and continue to run your business as usual.
Listing too high or too low
In some ways, selling a business online is similar to selling a house. If you price it too low, potential buyers will assume there’s a problem causing you to get rid of the business quickly. On the other hand, if you price your company too high, it could sit on the market for too long, causing potential buyers to wonder what’s wrong with it.
Hastily hiring representation
Hiring the wrong broker or attorney could cost you money and ruin your chance of receiving a good sale price. Before choosing a professional to work with, do your research to find someone qualified and capable and consider asking friends, family members, and other business owners for recommendations.
Tips for increasing your business value before you sell a business online
When selling your business, your goal is to maximize your selling price, which you can do by increasing the value of your business before putting it on the market.
1. Build a stable customer base
By marketing to past customers, your business can continue generating sales from repeat business. Over time, this will increase your business’s value as customers continue to buy from you and encourage their friends to do so, too.
2. Close any unprofitable divisions
If any of your company’s departments or product lines are not profitable, consider shutting them down. In the short term, you might reduce the size of your workforce. But closing unprofitable divisions will eliminate a portion of your business that’s dragging down your overall profits.
3. Boost your sales
Strong monthly sales will increase your business’s value and make your company more appealing to potential buyers.
Are you ready to sell your business online?
Selling your business online allows you to move on to new ventures or fund the lifestyle you want. But putting your business on the market and attracting the right buyer can be complicated. And finalizing the deal requires legal paperwork that might be best left to an attorney. By hiring an attorney, you can also ensure that you’re protected throughout the process.