Selling a Business – A General Primer

Most businesses are sold by first time sellers. This blog is intended to provide you some insight on the process of selling your business.


First do an analysis of the business  

  • Does the business have established systems and procedures?
  • Do you have regular, reproducible results?
  • Do you have reoccurring clients, products or services?
  • Are there any indispensable employees (including you)?
  • Consider a before the sale audit
  • Do a strengths, weaknesses, opportunities and threats assessment
  • Do an appraisal of the business 
  • Do an internal review of your legal infra-structure
        • Employment agreements with key employees including non-compete agreements
        • Agreements with key vendors and continuing customers
        • Lease agreements
        • Can you assign key contracts (including the foregoing)



Why are you selling?

  • move on to new opportunities
    • pocket the increase in the value of the business
    • burnout, retirement, looming industry changes


Who is your ideal buyer?


  • Identify Qualified buyers. This is usually based on experience in your industry or finances or both.
    • Who are the most likely buyers for the business?
      • An internal buyer (family member or key employee)
      • An external buyer (including a competitor or someone in the industry seeking to enter your market)



Determine an asking price for the business.


  • A history of profitable operation has a very positive impact on the asking price Unprofitable businesses rarely sell. Usually they simply close.
  • An appraisal provides some indication of and independent assessment of the value of the business. These can be as much art as they are science.
  • Sellers most often establish pricing based on:
      • How much they think they “need” to sell the business in order to:
        • Fund their retirement
        • Meet their subjective valuation of their efforts
    • Although no one wants to “leave money on the table,” it is important that the buyer is able to make a reasonable income.
    • The tax implications of the deal structure can influence the asking price
      • A Seller may take/get less for a stock sale versus an asset sale
      • Allocations of total consideration among non-compete agreement, consulting agreement, lease or other assets can influence the asking price and after sale taxes



Should you use a business broker?

Business brokers exist and can perform a valuable service (for which they intend to be paid)


      • Usually the Seller (or the Seller’s business) pays the broker.
      • Usually the broker represents the Seller
      • Brokers can sometimes provide industry insights due to specialization (example a broker who deals primarily with restaurants may have insight into the local restaurant market).
      • Brokers primarily provide potential Buyers with information given to them by Seller. Brokers sometimes verify Seller information.
      • As with all professionals, some brokers/brokerage firms are better than others.