How To Sell A Business
With the inconsistencies of businesses, it is important to have a well-planned exit strategy so if the time comes to sell, individuals can do so with less hassle and risk of losing money. Although selling a business can be a daunting task, there are several things to do in order to ensure a smoother sale. Before selling a business, individuals should carefully prepare all of their business assets to be sold. They must think about exactly how much they want to sell their business for and when they want to sell it. It is also important to think about how to sell the business because there are several different options available.
One of the first things individuals should consider when selling a business is seller financing. Nearly ninety percent of small business owners who choose to sell their business have had to use some kind of seller financing in order to get out on top. Most buyers will be unable to pay one lump sum of cash when buying a business and providing financing options will lead to more prospective buyers. Financing, however, can be confusing so it is important to have the basics down before choosing this option. It can also lead to losing money because much of the payment will depend on the individuals' former business's success. Of course, there are benefits to this option and several tax breaks can be taken advantage of if the seller qualifies for installment sales. The terms for seller financing are also much more lenient than financing from a bank. Banks generally have strict requirements when lending larger acquisition loans.
If seller financing is not a possible option, individuals may choose to sell their business using Initial Public Offerings (IPOs) or Direct Public Offerings (DPOs). When individuals use this option they are allowing their business to go public, which can lead to significant amounts of earnings because the entire public is now allowed to buy stock in the company. This option can be complicated and will only work for large scale businesses. It will also fail if the business being sold is not very successful or does not have a strong business plan.
Another option is to sell the stock of a business to the current employees in what is called Employee Stock Ownership Plans (ESOP). Any employee that qualifies for taxes can be allowed to invest in the stock of their current company. This option provides large tax benefits to both the employer and the employee and can allow for a business owner to only sell parts of the business rather than the whole thing. Of course, to use this option the business must be on a large scale, although not as large as what is required for IPOs, and have qualified employees willing to buy shares in the company.
It is important to never take the first offer from a potential buyer. They will often start as low as they can to try to get the business for less than it is worth. It is also suggested that individuals become familiar with liquidation and know how to file bankruptcy in case they are unable to find a buyer or to sell the business for the required price.
Once an individual selects a selling option and a buyer has been found, a sales agreement needs to be signed. This agreement must at least contain any background information on the buyer, a clear purchase price, the Terms of Agreement including payment terms, any warranties from either party, contingencies, fees, and a date of closing. Many people will have a lawyer review the sales agreement before either party signs, ensuring the fairest agreement possible.
Although the process can be difficult and the options are vast, if individuals follow these suggestions they should be able to sell their business with much less hassle. There are numerous options for those people wanting to sell their business, with each having advantages and disadvantages. With this variety, most sellers will be able to find the best option for them and sell their business.