How to Sell a Small Business: A Starter Guide for Business Owners

Want to Sell a Small Business? Follow these Steps to Get Started

The steps required to effectively sell a small business start well before you ever meet a buyer. Selling a small business is a complex process that requires strategic planning, financial preparation, and negotiation skills. Business owners must understand the steps involved, key considerations, and potential challenges. A well-structured approach can maximize the sale price and ensure a smooth transition for both the seller and buyer.

According to various sources, approximately two-thirds of business owners are less than ready to sell within the next 10-15 years, despite this being a huge time for selling with wide profit margins. It’s estimated that around 5 million firms that hold over 10 trillion in assets will change hands of ownership over the next decade or so. Only 20 to 30 percent of those businesses that end up on the market will sell. That’s only a quarter of businesses that will actually make a profit. The rest will flounder with a lack of preparation.  A recent national report noted that only a quarter of small business sales closed a deal in 2016 alone. –SCORE

According to various sources, approximately two-thirds of business owners are less than ready to sell within the next 10-15 years, despite this being a huge time for selling with wide profit margins. It’s estimated that around 5 million firms that hold over 10 trillion in assets will change hands of ownership over the next decade or so. Only 20 to 30 percent of those businesses that end up on the market will sell. That’s only a quarter of businesses that will actually make a profit. The rest will flounder with a lack of preparation.  A recent national report noted that only a quarter of small business sales closed a deal in 2016 alone.

This guide provides an overview of the business sale process and outlines the top 10 things small business owners should do before selling their company.

What to Expect When Selling a Small Business

Selling a small business typically takes between six months to two years, depending on market conditions, financial readiness, and buyer demand. The process involves several key stages:

1. Valuation: Determining the business’s worth through financial performance, assets, liabilities, and market trends.
2. Preparation: Organizing financial records, improving operations, and addressing legal considerations.
3. Marketing: Finding qualified buyers through brokers, online listings, or industry connections.
4. Negotiation: Discussing price, payment terms, and contingencies with prospective buyers.
5. Due Diligence: Buyers reviewing financials, contracts, and operational details before finalizing the purchase.
6. Finalizing the Sale: Executing a purchase agreement, transferring ownership, and ensuring a seamless transition.

Understanding these phases can help business owners set realistic expectations and avoid potential pitfalls.

Top 10 Things to Do Before Selling a Small Business

Proper preparation can significantly increase the value of a business and make the sale process more efficient. Here are the top 10 things small business owners should do before selling:

1. Organize Financial Records

Buyers require detailed financial statements to assess profitability and risk. Business owners should prepare at least three years of financial records, including tax returns, profit and loss statements, and balance sheets. Proper documentation builds buyer confidence and streamlines due diligence.

2. Obtain a Business Valuation

A professional valuation provides an objective estimate of the business’s worth. Business owners can hire an appraiser, accountant, or business broker to assess their company’s financial health, assets, cash flow, and market position. This ensures a fair asking price and prevents undervaluation.

3. Improve Profitability and Efficiency

A business with strong financial performance attracts more buyers. Owners should focus on increasing revenue, reducing unnecessary expenses, and streamlining operations. Demonstrating consistent profitability can enhance the business’s appeal and negotiation leverage.

4. Address Legal and Compliance Issues

Unresolved legal matters can delay or jeopardize a sale. Business owners should review contracts, licenses, trademarks, employee agreements, and regulatory compliance. Ensuring all documents are up-to-date and legally sound reduces buyer concerns and facilitates a smooth transition.

5. Strengthen Customer and Vendor Relationships

A stable customer base and reliable vendor relationships add value to a business. Business owners should maintain strong relationships, address customer concerns, and secure long-term contracts if possible. Buyers favor businesses with predictable revenue and loyal clients.

6. Develop a Transition Plan

A clear transition plan ensures business continuity. Sellers should document key processes, employee roles, and operational procedures. Providing a smooth handover period, including training the buyer or their team, enhances business stability and reassures potential buyers.

7. Reduce Owner Dependence

If the business relies too heavily on the owner, buyers may perceive it as a risk. Delegating responsibilities, training employees, and establishing management structures can make the business more self-sufficient and attractive to buyers.

8. Determine an Exit Strategy

A well-defined exit strategy outlines the preferred timeline and structure of the sale. Business owners should consider factors such as whether to sell the business outright, offer seller financing, or retain a minority stake. Clarifying these details in advance can help streamline negotiations.

9. Find the Right Buyer

Identifying the right buyer ensures a successful transition. Business owners can explore multiple channels, such as industry connections, business brokers, or online marketplaces, to attract serious buyers. Vetting potential buyers for financial capability and industry knowledge is crucial.

10. Assemble a Professional Advisory Team

Selling a business involves legal, financial, and tax complexities. Engaging experienced professionals, such as a business broker, accountant, and attorney, can help navigate negotiations, structure the deal properly, and optimize tax implications. Having the right advisors increases the likelihood of a successful sale.

Selling Recap

Selling a small business is a major financial and strategic decision that requires careful planning. By preparing in advance, addressing key financial and operational considerations, and seeking professional guidance, business owners can maximize their business’s value and achieve a smooth transition. Following the steps outlined above ensures a more efficient sale process and better financial outcomes.