Small business owners can face a monumental number of decisions when they are seeking to sell their business. BizBuySell’s Insight Report shows that small business acquisitions increased 4.8 percent in the first quarter of 2023 over the fourth quarter of 2022 after three consecutive quarterly declines, and median sale prices increased 1.4 percent and 11 percent over the previous quarter.
The first thing any small business owner in California will want to do when considering selling a business is seek the help of an experienced small business lawyer. Working with an experienced attorney will help a business owner better advertise the sale, get expert assistance relating to business valuation, and also assistance in all matters concerning legal agreements and other documents.
Know Your Reasons for the Sale
The first thing any potential buyer is likely to ask is why the small business owner is looking to sell. It will be important to have a good answer to this question because honest answers about lackluster profits can in turn hurt the chances of completing a sale.
Retirement, partnership disputes, illnesses or death, being overworked, or simple boredom can all be valid reasons for sales. Small business owners will want to be highlight certain other kinds of perks that can make the business more attractive, such as increasing profits, consistent income, a strong customer base, or major contracts that extend for long periods of time.
Timing the Sale
A small business owner will want to begin preparing for a sale as soon as possible. This will mean planning for a sale a year or two before taking any offers.
Proper preparation will allow a small business owner to collect all relevant financial records, ensure the business has the right structure, and also guarantee the customers that will ultimately make the business more profitable. Putting in the work beforehand will also help streamline the transition so the process can go as smoothly as possible.
Business Valuations
California business owners need business valuations only a few times, such as when a transaction is scheduled to occur and an independent assessment of the business value is necessary. Valuations can provide major insights into ownership before placing a business for sale.
Important information about strengths, weaknesses, and opportunities can provide important details about how to maximize value and allow for critical changes that can impact a sales price. There are many other situations in which a valuation could be required, such as needing to understand the value of assets involved in commercial litigation or other court proceedings.
Document Preparation
A small business owner should collect all relevant financial statements and tax returns going back as far as four years and then review the documents with a certified public accountant (CPA). A small business owner should also have a list of all equipment being sold with a business.
Small business owners will want to have a list of all their contacts relating to sales transactions and supplies as well as paperwork relating to their current lease. It will be important to have copies of such documents to distribute to any qualified possible buyers.
Information should include a summary of how a business has been conducted as well as an updated operating manual. Any areas of a business or relating equipment that is nonfunctional should be addressed and fixed or replaced before a sale.
Finding the Buyer
The sale of a small business could take anywhere between six months and multiple years. Finding the right buyer can often be a challenge, so advertising can help attract more possible buyers.
When a small business has prospective buyers, the process can remain moving when a small business owner turns to multiple potential buyers in case one initial deal falls through. It will be important to stay in touch with all potential buyers.
A small business owner should determine whether a potential buyer pre-qualifies for financing before they release any information about the business. When a small business owner plans to finance a sale, they should work out important details with a CPA or small business lawyer to reach an agreement with the buyer.
While it is important to leave room to negotiate, small business owners will want to remain firm on a price that they believe is reasonable. All agreements need to be in writing, and potential buyers should sign nondisclosure or confidentiality agreements to protect information.
Small business owners should also try to get signed purchase agreements into escrow. Common documents small business owners are likely to encounter after a sale can include a bill of sale transferring business assets to a buyer, an assignment of a lease, and a security agreement allowing a seller to retain a lien on a business.
Handling the Profits
A small business owner should be sure to take a considerable period of time before they spend any profits from a sale. Financial professionals can assist in determining the best ways to invest money and stress long-term benefits.
Speak with an Experienced Mountain View Small Business Attorney
If you are in the process of selling your small business, you may be telling yourself that you can save yourself a lot of money by handling everything yourself but many small business owners quickly learn that they will need some assistance. Kalia Law P.C. helps all kinds of business owners maximize their returns in these cases.
Our firm will be able to help you with every aspect of the sales process and will be able to answer all of your questions as soon as you get in touch with us. Call (650) 701-7617 or contact us online to receive an initial appointment.
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