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If you live in California and have considered selling your business, you may have a lot of questions. What do I need to complete before my business is ready to be sold? How much is my company worth? What should I focus on?
While selling a business can be complicated, a smooth transaction is possible with the right advice and planning. Here are 9 tips that will help you sell your business in California.
1. Determine why you want to sell your business.
Perhaps you’ve been considering selling your business for a while, so why now? What’s the driving force behind your readiness to hand over the reins of your company? There are many reasons why business owners sell, including:
Retirement
Relocating
Starting a new venture
Change in ownership
Your business is growing or slowing
Your prospective buyers will want to understand your motivation behind the sale. Articulating your reason will help you build credibility early in the evaluation process, so gaining clarity on this challenging question is critical.
2. Understand the value of your company.
Not only does a valuation help you to understand the full scope of your business, but it also helps you establish a listing price and financially plan for the sale. Many items are taken into consideration when determining the value of a business. These include:
Fundamental financial data such as balance sheets, tax returns, and cash flows.
Both tangible and intangible assets.
The geographic location of your business.
Current market conditions.
Your company’s potential for growth and expansion.
Your exit plan.
This process can seem cumbersome and confusing, so it’s best to visit with an experienced business broker. Click here to begin an assessment of the value.
3. Document all of your processes and procedures.
Potential buyers will be interested in how your business operates daily. Retaining detailed documentation of your operations and policies will show interested buyers that a smooth transition is possible. A few processes to ensure you’re documenting include:
Sales and marketing procedures
Daily operational processes
An employee handbook
Human Recourses documentation and practices
Showing interested buyers that the business can run smoothly without you is often a key selling point.
4. Review your financial records.
Before you start marketing the sale of your business, it's essential to have your financial records in order. Not only are these records fundamental documents you’ll need for the sale of your business, but they will also give interested buyers confidence that the numbers presented are accurate. When organizing your financial records, be sure you review the following:
The last three years of tax returns
A current balance sheet
An income statement
A cash flow statement
Providing accurate and comprehensive financial records will give potential buyers a better understanding of your business's financial health.
5. Focus on increasing sales.
One way to increase the value of your business and make it more appealing to buyers is to focus on boosting sales. This will show interested buyers that your business has growth potential and is a good investment. Here are a few ways to enhance sales:
Create a sales playbook and start delegating tasks to highlight a proven sales record independent of you, the owner.
Attract a diverse customer base ensuring revenue is generated from many different clients or customers and not from a small number of high-paying ones.
Establish streams of recurring revenue.
Upsell to current clients or customers.
Establish a Customer Relationship Management (CRM) tool if you don’t already have one.
Illustrating your business’s growth potential through increased sales will not only draw in more serious buyers but will also ensure you maximize your profits from the sale of your business.
6. Determine what will be included in the sale.
When selling your business, you'll need to decide what will be included in the sale. Your listing price may consist of both tangible and intangible items. Here are a few things to consider:
Inventory
Equipment
Real Estate
Intellectual property
Customer lists
Partnering with a successful team of advisors like a broker, attorney, CPA, and financial advisor can help you determine what needs to be included in the sale.
7. Interview business brokers.
Once you understand the value of your business and what selling it entails, you'll want to start interviewing business brokers. A broker can help you sell your business quickly and efficiently, maximizing your profits. They can also help you with the following:
Determining the value of your business.
Creating a marketing strategy for the sale of your company.
Maintaining high confidentiality as they seek to identify and connect with potential buyers.
Managing negotiations and providing due diligence before finalizing the sale.
We recommend working with a broker that belongs to the California Association of Business Brokers (CABB).
When searching for the right business broker to sell your business, be sure to ask about their experience selling businesses in your industry and in California specifically. Also, be sure who you partner with has your best interests in mind and understands the value of your company.
8. Get your business SBA approved.
SBA approval adds credibility to the health of your business. It's desirable to buyers who need to secure an SBA-guaranteed loan to purchase a business. If you’re working with a business broker, they can help you with this process, or you can work with an SBA-approved lender who may ask you for the following documents:
Past company tax returns
Profit and Loss Statements
Balance Sheets
Your W2
An asset list
Keep in mind that more documentation may be required, and there may also be other qualifications needed to ensure your buyer can acquire SBA funding.
9. Market your business and pre-qualify prospective buyers.
Once you've selected a broker, they will help you create effective marketing strategies that will attract buyers. A few ways to successfully promote the sale of your business include:
Create a buyer persona so you know who you’re listing is targeted to.
Contacting prospective buyers through cold outreach.
Determining how and where to advertise your listing.
Evaluating what other forms of advertising could be beneficial.
Remember that not all buyers will be qualified, so it's valuable to work with a broker with experience selling businesses in California to help you with this process.
If you're thinking about selling your California business, we can help. Contact us today for a consultation.