Preparation Needed for Selling a Business

So you’ve decided it’s time to sell your business. You may want to retire, or you simply want to unload the company before the market turns against you. How do you go about finding someone to actually buy your business?

Determine Your Business’ Valuation

Before you can sell anything, you have to determine its market price. If your business is privately held, you can value the company based on annual revenue and earnings, combined with physical assets – such as real estate and equipment, and then deducting debt. Patents and existing partnerships should also figure into this total. If your company is already publicly traded, then its value has already been determined for you by its market capitalization, and you won’t be able to sell right away unless you are in possession of the majority of outstanding shares.

Either way, as a seller you should ask for a healthy premium over its current valuation, citing future earnings and growth potential. It’s not unusual for larger companies to pay over 50% of the current “market value” in an acquisition. If in doubt, hire a business broker or mergers and acquisitions professional to help you get the best deal for your company.

Prepare a Selling Memorandum

Before you reach out to any of these prospective buyers, you need to prepare a selling memorandum, or “business plan in reverse”. This is intended to clearly outline all the main details that buyers would request.

These would include, but are not limited to -

• Your company’s history, structure, products and operations
• Your business’s valuation and asking price
• Your industry peers and competitors
• Your employees and leadership structure
• Past financial statements
• Future guidance and projected revenue and income
• Potential problems within the company (this is very important, as any attempt to cover these up could be viewed as fraud)

The selling memorandum is an extremely sensitive piece of information, and you would be wise to have prospective buyers sign a non-disclosure agreement before reviewing it.