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How Do I Sell My Small Business?

Posted by Jonathan Krems | Nov 05, 2021 | 0 Comments

We are getting closer to the end of the year, and many small business owners are getting ready to do their end of the year planning.  But maybe as a small business owner you are looking to transition with your small business.  If owning a small business is a burden too big to bear, maybe its time to consider selling your small business.  Before you make that decision, you need to have a reason why you should consider selling your small business.  There are three reasons why you should consider selling your small business.

1.  Retirement

The first major reason why you should consider selling your small business is retirement.  If you have had a small business for many years, and you are ready to retire from working in and on your small business, then retirement may be a valid reason for you to sell your small business and hand it off to a buyer who will give you a return on your investment.

2.  Busyness or Being Overworked

A second reason why you might consider selling your small business is being too busy or overworked as a small business owner.  If you are a small business owner, your small business needs to be a major priority in your life.  If you are too busy to be a small business owner, and manage the affairs of your small business, then selling your small business to a buyer might be the right solution.

3.  Profit

The third reason why you might sell your small business is for profit.  If you've owned a small business for some time, and you want to start another small business, or transition into a new business venture, you may find the time is right to sell your small business, and receive a profit, i.e. a return on your investment.

Once you have identified the reason why you need to sell your small business, here are seven steps you should take to sell your small business:

1.  Get Your Business Ready to Sell

The first step to selling your small business is to get your small business ready to sell.  You need to make sure that your business is legally and financially ready to sell.  It's always best to hire an attorney to help with the legal needs of selling your small business, and to hire an accountant to help with the financial needs of selling your small business.  Your attorney will need to review your operating agreement or bylaws, which will govern how the sale can legally be conducted.  Your attorney should also review any on-going contracts, leases, and other matters your small business might be involved in before you put your business on the market.  At the same time, you should hire an accountant to make sure your small business's finances are in order.

2.  Determine the Value of Your Small Business

The next step in selling your small business is to determine the value of your small business.  You need to know how much your small business is worth so that you can determine the sale price.  You may wish to hire an appraiser to conduct a business valuation to assist you in determining the sale price of your small business.

3.  Prepare Your Selling Memo

The third step in selling your small business is to prepare your selling memo.  There are several items that are necessary to prepare your selling memo, so at this stage, you will need to organize your financials.  You will need financial statements and tax returns for at least the past three (3) years.  You will also need to prepare a list of equipment being sold as part of your small business.  This is also the step where you need to get with your attorney and ask him to prepare your asset purchase agreement.  The selling memo itself will need to contain a lot of information for prospective buyers, including an overall description of your small business, information on your location, your business's strengths, a description of your products or services, information on your operations, potential buyer concerns, financial information, and your asking price and terms of sale.

4.  Find a Buyer

The fourth step in selling your small business is to find a buyer.  Once you have a prospective buyer or buyers, you will want to stay in contact with them.  You should find out if a potential buyer pre-qualifies for financing before giving him or her information about your business.  If you plan to finance the sale, work out those details with your accountant or attorney (or both) so you can reach an agreement with the buyer.  Allow some space to negotiate but stand firm on a reasonable price that considers the company's future worth.  Put all agreements in writing.  Potential buyers should sign a nondisclosure/confidentiality agreement, which is usually included in the letter of intent.  Also, you should get the signed purchase agreement into escrow, if possible.

5.  Participate in Due Diligence

The fifth step in selling your small business is to participate in due diligence.  At this stage, the buyer will wish to request all sorts of documents from you as the seller.  These documents include current ownership and structure documentation, along with proof of the same; current list of customers and accounts receivable; current list of vendors and accounts payable; financial statements; tax returns; contracts between your company and third parties; contracts between your company and current owners; employment records; maintenance records; a list of assets along with proof of ownership; a list of all liabilities; minutes of meetings of owners and officers of the company; and identification of any litigation, liens, or judgments of the business.

6.  Negotiate the Purchase Agreement

The sixth step in selling your small business is to negotiate the purchase agreement.  Usually the buyer will have his or her attorney draft the purchase agreement and present it to the seller or the seller's attorney.  You will need to make sure the purchase agreement includes the purchase price, payment, financing, a list of assets and liabilities, tax considerations, escrow issues, indemnification provisions, and other terms which need to be included in the purchase agreement.

7.  Close the Deal

The seventh and final step in selling your small business is to close the deal.  At closing, the parties will sign a bill of sale and the purchase agreement in its final form.  The purchase price will be paid if it has not been paid already.

If you are interested in selling your small business, or perhaps buying a starting a small business in the new year, please contact me at [email protected] to schedule a FREE consultation.

For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/

About the Author

Jonathan Krems

Jonathan is the Founder and Managing Attorney of Liberty Legal Solutions, LLC, a law firm dedicated to building, protecting, and defending the business and personal interests of our clients in Oklahoma.  Jonathan's primary practice areas are business law, contracts and agreements, business liti...

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