Determining when and how to sell a business is one of the biggest decisions that entrepreneurs have to make during the life of their company. Selling your LLC can be one of the most high-stakes financial transactions of your career, and there are a number of considerations to keep in mind, such as setting a marketable selling price of your business, getting your business financials and balance sheet in good order to prepare for a sale and more.
Whether your company is a fast-growing startup or a long-running franchise, there are a few key steps that every business owner should follow when selling a business.
1. Be Clear About Why You Want to Sell Your Business
There are several good, valid reasons to sell a business, such as:
You want to retire.
You’re having a disagreement with a business partner and one of you wants to buy out the other to take the business in a new direction.
You’re struggling with medical issues and need to step away from the business.
You want to do something different with your life.
You’re feeling burned out or bored or just want to make a change.
Before you decide to sell your business, make sure that you really want out and are ready to make longer-term adjustments in your life. Make sure you’re prepared for the implications of selling your business, not just financially but personally.
Are you really ready to retire? Are you ready to start a new career or a new company? Do you really want to sell your business, or do you just need a vacation or a short break? Make sure you’re selling your business for the right reasons, not just because you’re feeling short-term stress.
2. Plan Ahead to Get Your Business Ready to Sell
The most successful business sales typically do not happen overnight. If you want to get the most money for your business and manage the ownership transition successfully, you will want to start planning one or two years in advance before completing the sale. The goal of this advance planning period is to get the business ready to sell.
This time is your chance to boost profitability, clean up your balance sheet and financial records, expand your customer base, make some long-term strategic decisions and perhaps make some necessary changes to the business model, pricing or business structure.
Just like a homeowner who is about to list their home for sale will fix up their house and put a new coat of paint on the walls, this is your chance to improve your business’s “curb appeal” to potential buyers. Anything you can do during this time frame to enhance your business and make it run more efficiently will help you command a higher price for the business when it’s time to sell.
3. Get Professional Advice
Some entrepreneurs are able to sell their businesses on their own, but many business owners use professionals to help. You should consult with your business accountant to make sure your finances are in good shape; ask them for advice on what steps you should take to help the business be ready to sell, such as eliminating debt, building business credit or upgrading your business equipment.
You should consult with a business appraiser to get a valuation of your business; the appraiser can help you determine an asking price for the sale of your business, based on your industry, revenues, profitability and other metrics. Price your business too high, and you risk being unable to find a buyer. Price your business too low, and you risk leaving lots of money on the table.
Unless you’re determined to sell the business by yourself, you should also interview a few business brokers who can help you sell your business. Many brokers can help you sell your business without publicly announcing that the business is for sale. Business brokers can often help you figure out your best options for financing the sale of the business, such as selling the business to a current employee.
Just like selling a home, some people sometimes choose to do a “For Sale By Owner,” but many people choose to work with a professional real estate agent. Selling a business is a complicated, high-stakes transactions, and unless you have special expertise in selling businesses, you may be able to maximize the profit on the sale of your business by working with a business broker.
4. Get Your Financial Documents in Order
Prospective buyers of your business are going to want to have a look at your books. Get your financial documents ready, such as:
Business balance sheet
Profit and loss statements for the past 3-4 years
Tax returns for the past 3-4 years
List of business equipment or other fixed assets owned by the business that will be sold with the business
Details on recently purchased/leased equipment or facilities — if you’ve upgraded or repaired your business equipment, buyers will want to know
Contracts regarding sales transactions and suppliers/vendors
Paperwork such as leases, real estate mortgages
Standard Operating Procedures — any written information about how your business works, how your processes work, etc.
5. Find the Right Buyer for Your Business
Depending on your industry, location, type and size of business and prevailing market conditions, it might take six months to two years to find a qualified buyer for your company. You might need to negotiate with a few prospective buyers before you find the right one who’s willing to pay your asking price. You might have some buyers show interest, only to have the deal fall through when they can’t get financing or when they won’t agree to pay your asking price.
Ideally, you should talk with a few potential buyers and keep communicating with them throughout the sale process in case one drops out or a deal falls through.
Be ready to work with a lawyer or accountant (or a team of lawyers and accountants representing both the buyer and seller) to finalize the details of the sale agreement and arrange financing.
6. Sign Closing Paperwork
Depending on the specifics of your business, you might need to sign or have the buyer sign some of the following documents to close the sale:
Signed Purchase Agreement: includes written details of the agreement, including terms of sale, selling price and any complexities
Non-Disclosure Agreement/Confidentiality Agreement: signed by the buyer to protect your sensitive information
Non-Compete Agreement: signed by you, the seller, to agree to not start a new business that competes with the buyer’s newly purchased business
Bill of Sale: officially transfers the business assets to the buyer
7. File Articles of Amendment to Change Name of Business Owner
Finally, as part of closing the sale of your LLC, you will need to file Articles of Amendment to update your company’s Articles of Organization with the name of the business owner and show that the business is under new ownership. Your LLC exists in perpetuity, as long as you keep up with filing your annual reports. Filing Articles of Amendment allows the business to officially continue as a legal entity, but under new ownership.
Remember that you don't have to go it alone. Incfile can take care of filing your Articles of Amendment for you, making the process easy and less time-consuming. Just as we support you along the journey of starting a business, Incfile can help you transition out of your business, too.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.