How to sell a business

Why do entrepreneurs sell their businesses?
There can be many reasons for this: tax burden, crisis, problems with a business partner, a desire to take a break from constant responsibility, etc. Regardless of the reasons why you decided to sell your brainchild, you will have to go through four stages.

Stage 1: From idea to realization

Just as every mother believes her child is the smartest and most beautiful, so every entrepreneur believes their business is the best. However, if you decide to sell your business, you will need to back up your beliefs with facts so that potential buyers also decide that buying your business is the best option on the market. To do this, you will need to evaluate your assets, liabilities, human resources, and business processes.

In order to make your business more attractive to potential buyers, you need to put it in order and deal with current problems. A business audit will help you with this.

What will a business audit give you?

1. It will help to identify and resolve legal risks.
2. Identify your strengths and advantages over competitors.
3. Estimate the value of your business.
4. Identify the legal components of your business.

On average, such an audit takes one to three months to complete. To conduct it, you need to hire a third-party company that specializes in this. They already have experience in similar sales, as well as the necessary knowledge in finance and corporate law.

Step 2: Determine the price and structure of the deal

Before you decide on a price, you need to define your company structure and decide how you will sell it. Depending on what your company consists of, you will need to build a legal structure for the transaction. For example, your business consists of five sole proprietorship, or you have two LLCs and three sole proprietorship, or you have a large holding with foreign investments. You will need to decide what exactly, when, and at what price you will sell.

At this stage, you will also need an experienced legal professional to help implement such a deal. He or she will develop the structure and help you sell your business in compliance with Ukrainian law, as well as help you avoid unnecessary expenses.

How to calculate the value of a business

Once you've decided on the structure of the deal, you need to decide how much your business can be worth. Here, you need to approach the issue wisely, as too high a price can scare off buyers. There are three methods of business valuation to determine the value of your business.

Method 1 is costly. The essence of this method is as follows: you calculate how much it might cost to start a similar business from scratch. This way, you can estimate the tangible assets of your business, but you can only estimate the prospects and income.

Method 2 - profitable. The future buyer is interested in the question of when he will be able to "recoup" his investment. Using this method, you can estimate the amount of future profit based on past and present cash flows. However, it is not possible to make an accurate forecast using this method.

Method 3 - comparative. This method estimates the value of a business using coefficients based on sales data of similar businesses. Using this method, you can objectively assess how fair your price is. The accuracy of this method, like the previous ones, is not one hundred percent, as it depends on the sample on which the analysis is based.

When determining the value of a business, a combination of the above methods is usually used, as none of them alone can comprehensively assess the business. It should also be borne in mind that demand has a major impact on the price.

Stage 3. Search for a buyer

After you have determined the value of your business and decided how you will sell it, you need to decide on the reasons for selling. Every potential buyer will ask you why you decided to sell your brainchild. Depending on your answer, the potential buyer will either be interested in your offer or run as far away as possible.

Reasons for selling a business

Positive reasons

(they are clear to the buyer and easy to confirm):

• relocation (to another city, country);
• retirement or health reasons;
• the business was created for sale;
• lack of time to do business.

Neutral reasons

(they do not arouse suspicion among the buyer and do not affect the sale price):

• lack of finance for further business development;
• investments are needed to develop the core business;
• loss of interest in this type of activity;
• changing market conditions and high competition.

Warning signs

(reasons why buyers are wary of the price and may require its justification and confirmation):

• is threatened with bankruptcy;
• disagreements between business owners;
• urgent need for money;
• crises.

Where to look for a buyer to buy a business?

Selling a business is no different from selling any other product. Buyers can be found on specialized online platforms, through word of mouth, or by contacting specialists who deal with such transactions. Quite often, business valuation companies also help with the search for buyers.

Stage 4. Signing the agreement

At this stage, the main thing is the security of the transaction for both parties. The flow of funds, documents and assets should be clear. Compliance with Ukrainian legislation.

All of these steps will be meaningless if you are not committed to the successful completion of the transaction and seeing it through. According to statistics, 80% of companies were never sold due to the fault of business owners because they did not complete the deal.