Selling a small business is a complicated process that requires careful thought. You might need to work with a broker, accountant, or lawyer as you move forward. Whether you make money off the sale will depend on the rationale behind it, when it happens, how well the company is run, and how it is structured.
When you know that your financing won’t be in good condition for long, It is crucial to start planning for the sale at least a year or more in advance because you will have more time to enhance your financial records, clientele, and other aspects of your business that can increase its performance.
What to do before selling your company?
When there is a valid apprehension that your company will run out of cash soon and you wish to sell it, you need to prepare for it at least a year ago. In the meantime, you should try to increase the cash flow by following the given tips:
- Reduce cash outlays: Stopping or delaying your cash outflows is one option. In many situations, bargaining with your creditors, landlord and suppliers will allow you to provide your company a last-minute respite.
- Obtain payment sooner: Although the sale has been completed and your goods or service has been delivered, some customers’ payment has not yet been received by the company, and you still need to pay your expenses. There are ways to expedite this procedure and receive the money owed to your company earlier to maintain your cash flow.
- Getting rid of Inventory: Your business may be able to generate some cash by selling inventory to get through a difficult time. However, you could have to sell your goods at a loss if you need money right away. Carefully evaluate your situation before, as it may or may not be worthwhile.
- Credit Cards: A company credit card can be advantageous for managing cash flow and comes with benefits like reward programmes. Business credit cards can be easy to get if your personal credit is good, but you might have to sign a personal guarantee.
- Borrowing: Borrowing money to infuse extra cash into the system is another way to solve cash flow issues only if your company’s foundation is strong with predictable income. The best way to solve short-term cash flow problems, seize opportunities, or promote growth is through borrowing. There are various borrowing options you can consider: Traditional Bank Loans, SBA Microloans, Personal Loans, Short Term Funding or Asking friends and family.
Read more about how you can improve Cash Flow (8 Methods)
How to Sell your Business?
After going through the above tips to maintain a better cash flow and not get bankrupt, you should follow the steps given below:
- Company valuation: After deciding the time to sell your business and the reason for selling your business, to avoid pricing your firm too high or too low, you’ll want to assess its value. To receive a valuation, find a business appraiser. The appraiser will create a thorough justification of the value of the company.
- Employing a broker: In other cases, a broker can free up your time so you can focus on running your business or keep the sale under wraps to secure the best possible price. Maintain frequent communication with the broker and go through expectations and marketing.
- Getting Documents Ready: Gather your tax returns and financial statements going back three to four years so that you can evaluate them with an accountant. You should also provide an overview of how the company operates in your information packet, as well as a current operating manual; and repair any deteriorated equipment.
- Locating a buyer: According to SCORE, a nonprofit organization for entrepreneurs and allies of the U.S. Small Business Administration, a business sale may take anywhere from six months to two years. Hence, don’t restrict your advertising to get more customers. Here’s how to continue the process if you have prospective buyers: Just in case the initial agreement falls through, gather two to three possible buyers and keep in touch with them. Ascertain whether they are pre-qualified for finance. Allow some opportunity for negotiation but before it work out the specifics with your attorney or accountant and maintain your position on a price that is fair and takes the company’s future worth into account. Any agreements should be in writing. To safeguard your information, the prospective buyers should sign a nondisclosure/confidentiality agreement. Attempt to escrow the signed purchase agreement.
- Managing the Profits: Wait a while—at least a few months—before using the sale proceeds. Make a strategy describing your financial objectives and find out whether there are any tax repercussions due to your sudden windfall. Consult a financial expert to decide how you want to invest the funds and concentrate on the long-term advantages, such as paying off debt and setting up money for retirement.
Read more about selling your business and how you can proceed with it.
