How to Sell Your Own Business
1 Prepare your business for sale. Before you sell your business, you need to accumulate information and prepare a package for others to review. Included in this package will be financial statements and tax returns for the last three years, internal financial statements for the current year. Copies of notice of assessments from the appropriate government agency to confirm that the information you are presenting was actually filed with the tax authorities.
2 Determine what you are selling. Are you selling the shares of the business or the assets of the business. There are significant differences between the two. If you sell the shares of the business, the buyer of the business assumes all your liabilities of the company. These include tax and trade payables even if you did not disclose them in the due diligence period or as a result of a tax reassessment after the sale of the business has been consummated. The seller usually has a tax advantage to selling the shares of the business but the buyer usually wants to buy the assets of the business because they are not buying any potential skeletons that you may have not disclosed and they do not assume any potential tax liabilities that you have have incurred.
3 Prepare a list of assets which are you selling. If there is inventory, you have provide a general description of the type or categories of what is carried in inventory. This will be reviewed in detail at a later date. If you have fixed assets, what is included in the sale of the business, how old is the equipment, what is included in the fixed assets being sold.
4 Determine the normalized profits of the company. These are the on going profits of the company which would continue after you have gone. Typically, you remove all the personal expenses and family members from the payroll and you would include a salary for the owner which would have to be paid to a third party who would run the business if you were not involved in the day to day operations of the business.
5 Determine the value of the business. There are many ways to value a business, earnings multiple, discounted cashflow, fair market value of the assets in the company. You will have to determine the most appropriate method of valuation and determine what is the fair market value of the business. Remember, the fair market value is the price that a willing buyer is willing to pay not the price that you need to retire. If the purchase price is overstated, few if any people will look at your business for sale.
6 Prepare a 3 page summary of your business in case someone would like a little more information. Have the rest of the information if the buyer appears to be more serious and wants to discuss the purchase of your business more seriously. Some of this information would be provided only after you request a confidentiality agreement be signed to protect you in case they disclose this information to a competitor.
7 Determine if you are going to prepare your business yourself or use a business broker.