How To Sell Your Business? Steps To Follow For Selling Your Business- A Guide

Abinaya Arangarajan Abinaya Arangarajan ANJANA A K ANJANA A K
Sep 18, 2021 10 min read
How To Sell Your Business? Steps To Follow For Selling Your Business- A Guide

Inaugurating a business by capitalizing a hefty amount in it, is a tantamount predicament task to auctioning it off to someone you either know or not. Selling a business is not an easy decision made by an entrepreneur, because that business conserved as revenue in his life.

On the other hand, retailing any ilk of businesses depends on the nature and size of the business, whether it is a small or large corporation. Moreover, people wonโ€™t acquire any business without seeing a benefit in it. Everything comes at a price.

For instance, in a small business, buyers wonโ€™t see many benefactors in it as it is small-scale production and wonโ€™t exist for long-term growth. Meanwhile, if you peddle a large business, the very first thing a buyer looks for is- Long-term revenue and growth. So, ascertain the value of your business with the help of nature & size.

You canโ€™t give away your business to someoneโ€™s hands without analyzing what comes next, like quotes โ€˜Think before you Actโ€™; Sketch your future plan with the money you're gonna get from selling your business.

Here are the things an entrepreneur or a businessman should definitely know before selling the business.

Steps To Sell Your Business
Step 1. Self Evaluate
Step 2. Know your Value
Step 3. Know the Opportunity Cost
Step 4. Strategically Fix the Pricing
Step 5. Know your Buyers
Step 6. Target Multiple Buyers bidding
Step 7. Draft Agreement
Conclusion
FAQ

How to sell your business?

Steps To Sell Your Business

Things to know before selling your business
Things to know before selling your business

Selling off your business without any second thoughts will drive you to someplace either in a propitious or unpropitious future. Because you have done the diligence in growing your business which made your life better as well as contributed profuse services to people by gaining goodwill from it. But what if you have sold it to any wrong hands, this will bring a bad repute to you shortly.

So, Think twice before auctioning your business. If you are vacillating about selling your business, then donโ€™t do it. Only if you are uncertain in monetary terms or challenging to manage your business, then you can look to market your business to someone who could do it efficaciously.


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Step 1. Self Evaluate

Self evaluate before selling your business
Self evaluate before selling your business

Self-evaluation is the first step that must be done when you think about selling your Business. What is the reason behind such a big step? There must be a clear-cut answer, which is acceptable by the buyers. Without a valid and clear reason, nobody is going to buy a business.

So before selling a business, you must have a well-structured strategy with the help of specialized personnel to avoid any mistakes you may make.

Why Self Evaluation?

Self Evaluation must give you the answer for the following:

  • Why am I selling my business?

You must have a point-by-point reason for this big decision at the starting stage itself, which makes it easy for you to stick to a particular area without getting confused at the later stages while communicating with the buyer. This may create a bad impact on the business. The reason also influences the buyers and their decision on the price.

  • Your decision for selling is solely based on profit value?

If you are in need of money and that is the reason behind the idea of selling, never make a hurry. That will only cause loss for your business sale. Just look for the perfect time and buyer with whom you feel comfortable selling your business.

  • What is your future plan?

Are you selling the business completely or do you want to remain as a partner or investor in your business? Think and make a clear decision about your association with the business in the future. Buyers must also be given the perfect answer about your vision on this.

  • Business is free of liabilities?

Business must be free of any liabilities, having which it will be a black mark, which will make an impact on the sales and price for sure. All existing liabilities, including personal, materialistic, money should be cleared even before making your decision to sell the business to the public.

  • Are all the papers clear?

Make sure that you have clear, complete, and well-structured documentation about the business. All vital records, including financial, marketing, business, and professional, must be included here. These documents make an impact on the buyer, let it be professional and profit documents.

Whatโ€™s your next act?

It is cited that preparation is the sole key to success, so start prepping in advance in case you donโ€™t want to lose a great opportunity in the near future. Always, compute your next step, because that is gonna manifest your position in the future.

These questions may pop up in your mind while selling your business: โ€˜What am gonna do after the business is bought? Will it be good for me and profitable in the future? Get ready to answer all these questions before giving away your only source of revenue. Therefore, plan subsequently to your list and set an alternative solution like- finance in some property and get revenue from it or become a partner in a company.

Well, the ending is the new beginning, you have to make up your mind in selling your business after analyzing whatโ€™s your next step.

Step 2. Know your Value

Selling your business is the decision you took that may have a numerous reason behind. But before getting into the sales, after evaluating your business, you have to know your value and you have to be clear about what you are looking into. This includes the following criteria:

  • It is best to evaluate your business first before going to a broker and discussing it because nobody knows your business as you do.
  • Estimate your business, including the incomes, taxes, earnings, profits, etc.
  • Know the market and market price.

Your assets and your earnings are more known to you. Try to get the best out of it when you decide to sell it.

Know your Stable status before Selling off

Check out whether you have sufficient money to pay off the expense or meet any other requirement for the future. Selling off your business may credit a large amount of money in your account, but will it be enough? Will it be adequate to survive till my last days? To sell your business in case you want to earn any profit out of it, start a new business or sell it if you are financially unstable to satisfy obligations.

Estimate the Value of your Business

Goodwill is the brand name, which you have earned in the locality of your business. Buyers will definitely pay a tremendous price when your business has a good reputation in the market and automatically accelerates demand. So, fix the purchase price according to the value of your business.

Step 3. Know the Opportunity Cost

Before selling your business, estimate the approx opportunity cost you will get in that. Generally, opportunity cost is the best alternative when a thing is foregone. You have to estimate the value you're gonna get when you market off the business, ask yourself whether the opportunity cost of your business will be profitable or not? If not, what is the intention of selling it? And if yes, then how much are you gonna be helpful and what are you gonna do with it?


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Step 4. Strategically Fix the Pricing

You donโ€™t know the other side excepted acquiring price of your business. If you fix a higher price than the expected one, then the buyer wonโ€™t be amenable to acquire the business. So, determine the expected price of your buyer, then bargain for the price you want to sell your business.

Step 5. Know your Buyers

Being a business person, you may already know the trend and the top people in the industry. Professional reasons may be there behind the acquisition of your business. Always try to get the best buyer who believes in investing the worth you put for your company.

Instead of offering negotiable amounts to the buyers, wait for the right one when you get an intuition that the person is perfect to run your business after you.

Step 6. Target Multiple Buyers bidding

Donโ€™t propose for one particular buyer, target various buyers and see how many of them (potential buyers) are inclined to invest money in the range that you have set for your business. Besides, this will augment your company outlook in terms of profitability as well as increase demand for your business in the market.


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Step 7. Draft Agreement

Draft the final agreement properly
Draft the final agreement properly

The business, which you have strengthened for years in good terms should be given to the right hands. If you have ceded your business in good hands, then the long-term growth of reputation is guaranteed for you in the near future.

Unlike, in case the business is rendered to wicked hands, then such a reputation which you have amassed for years before selling it would go trivial. So before trading your business, determine the potential of the buyers in sustaining the business credible.

While drafting a sale agreement, make sure the presence of a lawyer or someone who has pretty much knowledge about the agreement and drafting. Don't miss out on anything because you could end up paying later. The agreement must be acceptable to both parties and any disputes must be settled before signing the agreement to avoid further confusion in the future. Some of the must-have agreements are:

  • Asset listings
  • Bill of Sale
  • Security agreement
  • Purchase agreement

The agreements must have the following details, which must be verified at the earliest.

  • Buyer and Seller Details
  • The detailed specification of the property
  • Terms of Payment
  • Terms and conditions

So are you ready to sell your business? Just take it as simple as it is. You know your business and its internal and external happenings. Make everything clear to the lawyer and the broker or any mediator if there is any. They will help you in drafting the perfect agreement.

Finding the potential buyer is the main aim and may take time. Be patient and wait for the one whom you think is eligible to take over your business. Time and price may not be in your hand. You will have to wait until you get satisfied.

If you find growth in your company after the decision of selling, let it be. Your profit will only increase with a company with great profit. More buyers will get attracted to your business and you will notice a hike in the estimated purchase value.

When a buyer gets interested in your business, they first send an IOI i.e. Indication of Interest. This is a document with their proposed terms and conditions and other details. This document is the primary thing based on which the owner decides whether to move forward with that particular buyer or not. After the IOI, the LOI or Letter of Intent is given to the buyer which includes the terms and data about the company, to give the buyer a complete picture of the business, which helps them to make a decision i.e. whether to move forward with the purchase of a business or not. ย The next document is the purchase agreement that contains detailed data about financial and legal terms and conditions. This is the final document to be presented during the sale.

Conclusion

Well, like said above, starting and selling a business requires a lot of time and effort. The thought of selling a business befalls when you face a financial crisis to meet business requirements and when you want to sell the business in order to start something new in the future.

The amount you receive in selling your business highly depends on the value of your business - Goodwill. On the other hand, finding a potential buyer who is promised to maintain your business on good terms after surrendering it to the buyer. Therefore; Keep in mind, work in progress to result well in a long-term process, if you are planning to sell off your business in the future at a higher price.

FAQ

What is the rule of thumb for valuing a business?

The common rule of thumb for valuing a business is to calculate your percentage of the annual sales, or ย the last 12 months of sales/revenues.

Do I have to pay tax if I sell my business?

Yes, you may have to pay tax if you sell your business.

What to do before you sell your business?

Few things you should know before selling your business is to estimate the value of your business, target multiple buyers bidding and Donโ€™t fix the purchase price too high.

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