Before you begin the steps to sell your business, speak with your attorney and accountant to determine what loose ends you may need to tie up first. Both professionals can offer you sound advice — one legal, the other financial.
1. Know its worth. How do you price a business? There are a number of factors to consider that go beyond a business’ age, what a business broker can advise you on. Still, there are factors that determine what a business is worth including its assets, sales, goodwill, location, your customer base and industry. This process is an easier one if a like business has sold within the past year. Look beyond your service area to find those properties.
2. Clean up your paperwork. Potential buyers will want to see a paper trail that give evidence on how your business has fared over the years. You will likely need to furnish financial reports including a Profit & Loss statement. Buyers will want to review your books, to determine if customers have been paying you and that you are up on your bills. Your accountant can bring your books up to date. Your attorney may advise you on establishing terms.
3. Look for buyers. We touched on the business broker in the first step. This individual may be the one that will bring you a buyer, with you paying a fee or a percentage of the sale price to the broker for her work. Begin looking for a buyer among the people you know — a friend or family member may be interested in taking over your business. You can also consider your competition — maybe a rival wasn’t able to put you out of business, but would jump at the chance to take over your business.
4. Let’s make a deal. Do not rush into a deal. Allow the buyer to perform due diligence. This also means that you will want to check out this individual to ensure that he can afford your business. Set a market price and know you bottom selling price before you begin to negotiate. Keep in mind that broker fees and taxes will take a bite out of your profits, but do not set the price too high that potential buyers will move on.
5. Get it in writing. You need to present a sales agreement for your buyer to sign. Your attorney will review it and your buyer’s attorney will do likewise. Put everything in writing making no assumptions that something is part of the deal that is not. For instance, if the deal does not include the equipment, this needs to be spelled out. Accept a down payment and outline your payment schedule.
6. Head to closing. Just as you have done with your personal real estate, your business real estate will have a formal closing. Follow a checklist that your business broker has provided to ensure that every facet of the selling process is covered. Review your documentation, update your financial information, supply your customer list and receive your funds. Complete the sale at closing. Be happy. Celebrate.
7. Prepare for the IRS. You have received funds for your business and have distributed funds to your broker, accountant and your attorney. Keep your accountant on retainer to handle your taxes — the IRS and perhaps your state may be looking for a cut in the proceeds. Fill out the appropriate IRS form and include that with your taxes. Then go on and enjoy your retirement.
Before you market your business, talk with your accountant about the tax implications. If you stand to make a hefty profit, know that your tax rate may be quite high. Your attorney to discuss ways to reduce your tax impact by deferring income or spreading your costs out over several years. Keep what you earned and do not give Uncle Sam a cent more than he deserves.