If you want to enter the world of entrepreneurship without starting from scratch, you may consider buying a business. However, some prospective business buyers aren’t sure where to start.

Luckily, there are business brokers, marketplace sites, and tons of other resources to help you navigate the process. Each business purchase is likely to look a bit different. But understanding the basics can help you at least get started.

To learn more, download the BizBuySell Guide to Buying a Small Business. (Or if you’re selling a business, download the BizBuySell Guide to Selling Your Small Business.)

Why Buying an Existing Business Can Be Better

If you’re interested in business ownership, your two main options are starting from scratch or buying an established business. Purchasing often provides a head start with things like brand recognition, operational processes, and cash flow.

Depending on your industry, location, and business history, there may already be a healthy customer base of regular buyers. That brand recognition and existing cash flow can essentially give you a head start in your business journey. You don’t have to spend time building that initial foundation.

Existing businesses tend to be a bit more stable than startups. Since they’ve already gone through that initial growth period, there are often fewer startup costs involved. This can eliminate some of the risks that comes from starting a brand-new business. Your startup cost when purchasing businesses for sale usually just involves the sales price and minimal other expenses like paying a broker.

Buying an existing business can also be easier logistically. You can eliminate a lot of the trial and error that comes with running a startup. And you don’t have to complete all the paperwork needed to get your business legally in place. Of course, there is still plenty of paperwork involved in buying businesses for sale. However, a broker can often help you with this part of the process.

Preparing for Business Acquisition

Before embarking on a business acquisition, it’s essential to prepare yourself for the process. This involves assessing your capital for the purchase, understanding the seller’s motivations and circumstances, and negotiating the purchase price and terms.

Assess Your Capital for the Purchase

Assessing your capital for the purchase is a critical step in preparing for a business acquisition. Start by evaluating your own savings and investments to determine how much you can personally contribute. Next, explore potential financing options, such as traditional bank loans or alternative financing methods. It’s crucial to have a clear picture of your financial capacity, not just for the initial purchase but also for the ongoing costs of running the business. These costs can include employee salaries, rent, equipment maintenance, and other operational expenses. By thoroughly assessing your capital, you can ensure you have the necessary funds to support both the acquisition and the continued success of the business.

How To Decide on the Type of Business to Buy

There are many factors to consider when buying a small business. You have to look at the finances, potential of the business, and how well it fits with your lifestyle and skills.

On a personal level, start by evaluating your goals for the business. If your goal is to buy a business so you can enjoy more time with your family, look into lifestyle businesses that don’t take much time to run. For example, a vending machine business may be more in line with your goals than a full-service restaurant. You can even find some businesses for sale that would allow you to work from home, like online business consulting or dropshipping businesses.

You should also consider your personal skill set when looking into various industries. If you have experience in auto repairs, then a body shop may be a better fit than a plumbing business. Identifying a particular business that aligns with your expertise can significantly impact your ability to make informed strategic decisions and innovate within that sector. There are also many business models that simply require things like strong communication and leadership skills. Make a list of your skills and the industries you’ve worked in (and enjoyed) to narrow down your marketplace search.

From there, you need to look at your budget and how much the business you’re interested in is likely to cost. Businesses with physical locations and lots of equipment tend to be more expensive than those that can be run remotely. So a large manufacturing operation is probably not a great fit for someone on a tight budget. However, a carpet cleaning business with just a few pieces of equipment and a truck is likely to be more affordable. Go over your personal budget carefully and review your financial goals to compare listings that you can afford.

How to Search Listings when Buying a Business

Looking for a small business to purchase usually starts with a search on an online business marketplace. Some of these sites are specific to businesses in a particular industry or location. But many offer a huge range of opportunities. Try multiple marketplace sites to widen your search and get the most relevant results. You can even buy a business on eBay, just Google, eBay companies for sale and you will find many listings. You can search by location, keyword, industry, and price to find the listings that are most relevant to your goals. You might even use these tools for initial research to see the basic price range for certain types of businesses in your area.

Before browsing these marketplace sites, narrow down your goals for buying an existing business or launching your own business. Then enter the keyword or industry in the search bar to bring up relevant small business listings. If advanced search features are offered, make sure you set your budget and location as well. From there, you can browse options for the opportunities that most closely suit your interests, budget, and skills.

To begin looking for a business to buy, use the Business for Sale feature on BizBuySell.

Understand the Seller’s Motivations and Circumstances

Understanding the seller’s motivations and circumstances is crucial in a business acquisition. Knowing why the seller is parting with the business can provide valuable insights and leverage during negotiations. Are they retiring, or is the business struggling? Are there any outstanding debts or liabilities that you’ll need to assume? These factors can significantly impact the terms of the sale and the future success of the business. By gaining a clear understanding of the seller’s situation, you can better negotiate a fair price and favorable terms, ensuring a smoother transition and a more informed decision-making process.

How a Business Owner Chooses the Right Candidate

Small business owners who are selling a business want to make sure they choose the right buyer. They likely built the business from scratch and poured tons of work hours into it. So they want to see it continue to thrive under new ownership as well.

Of course, money is one of the largest determining factors in the sale of a business. Owners are only going to consider candidates who are able to meet their asking price or at least get close to it. Aside from the initial purchase price, they may also want to make sure you have some working capital. Even if the business has healthy cash flow, there may be an adjustment period during the owner transition. So having access to a bit extra can help you stay afloat. The exact amount is likely to vary depending on the type of business you buy. Using a net worth calculator will let the owner know exactly what your assets are.

However, business owners are also likely to consider your personal skills and qualifications. Many won’t even consider someone who doesn’t have experience in their specific industry. This is especially relevant for businesses that provide services, like electricians or HVAC companies. But those in industries like marketing, retail, and even food service may also want potential buyers to have specific experience. These qualifications are usually included in business listings on marketplace sites.

Finally, they may also want to make sure that your lifestyle aligns with the business you intend to run. They know better than anyone how much work it takes to run their company. So if you’re a retiree who wants to travel regularly, a restaurant owner who has put in 60+ hour weeks may be hesitant to sell. But if your lifestyle goals seem realistic based on their experience, it can give them confidence that you’re well suited to run the business.

How to Evaluate a Business for Sale

You’ve finally decided on the business you want to buy. Now here are some details you may wish to review before moving forward.

Cash Flow

Look at the money going in and the money going out each month. This should include revenue like client contracts and ongoing sales. But it should also include expenses like rent, utilities, inventory, and supplies. Setting up healthy cash flow during the startup phase can be tough and time consuming. So gaining access to these systems that are already in place is one of the main benefits of buying an existing business. You just want to make sure the business isn’t spending money faster than it makes money. So ideally, the business should have more revenue each month than it spends in expenses. And timing those incoming payments to easily cover any bills can help your operations stay afloat. This also may allow the business to turn a profit, or at least have room to do so.

Financial Statements

From there, dig into the company’s business financials even more. Looking at financial statements should give you an idea of specific expenses, earnings, and assets. This may help you evaluate areas where the business could improve. For example, there may be expenses that can be cut or revenue opportunities that aren’t being maximized. And it can also give you a better idea of why the business is valued the way it is. If the finances paint a positive picture, it may be worth paying a bit more. However, if there are outstanding issues, you might want to walk away from the opportunity or try to negotiate a lower price.

Reputation in the Marketplace

An existing business comes with an existing reputation. Even once it’s under new ownership, previous negative experiences may hinder your growth. But positive ones could help you grow faster or at least stay afloat. Look at things like online reviews, BBB ratings, and feedback from people in your community. If customers have had negative experiences, you might want to think twice about purchasing or at least make sure the price isn’t too high. You might even consider rebranding a business like this to disassociate it from those negative experiences. But this process takes money and eliminates some of the benefits of buying an existing business. On the other hand, if there are tons of happy, existing customers, they’re likely to continue purchasing even once you take over. And those who haven’t purchased from the business may also be more likely to do so if they’ve heard positive things.

Brand Recognition

The brand name can also make a major difference in a business’s value and viability going forward. If lots of customers have at least heard of the company already, you may be able to spend less on marketing. It may also make it easier for you to get press and benefit from word of mouth marketing as you take over. Again, make sure that brand recognition is mostly positive. If not, you may be better off starting with a little-known brand than doing damage control. But if the company has invested in ads, PR, or community engagement through the years, that can be a major asset to you.

Detailed List of Employees

Building a team is one of the most important and potentially difficult parts of creating a new business. So when you buy a business, adopting the existing team may help. This can be a major benefit if the team is skilled, experienced, and willing to stay on under a new business owner. However, employees also represent a major expense. So it’s important to make sure they’re bringing in money and performing their duties efficiently. A full evaluation is likely not possible until the due diligence phase. But early on, you can at least get an idea of the number and types of employees in a business. And you may be able to find out the general cost of the team.

Location

Location is one of the main factors that determines business success, especially for public-facing businesses. On the most basic level, make sure the business is located in a convenient location for you. Or in select cases, you may want to buy a business that is location independent, like one that can be run completely online. If you need to welcome customers and/or team members, you also want easy access to things like freeways, parking, or public transit. And for businesses like restaurants or shops, proximity to downtown areas or business districts can dramatically increase foot traffic. Then, of course, you must consider the cost of maintaining the location. These convenient and popular locations can be more costly. But they also tend to come with higher revenues. So weigh this factor along with the business expenses detailed above.

Inventory

Some businesses come with a physical inventory of products or supplies. You’ll want to find out how many of these items come with the purchase, where they’re stored, and what condition they’re in. For example, when buying a retail store you should find out the amount of items that have already been purchased to keep shelves stocked. But you should also consider the costs of maintaining that inventory over time. Include purchasing prices and storage. If there are existing vendor contracts in place, that should also play a role. You can’t necessarily lower expenses if there’s a legal agreement in place. Or it may be difficult to do so if all the company’s processes revolve around stocking a specific type of item.

Real Estate

Some businesses also come with buildings or property. This is especially relevant when you buy an existing business with a physical office, warehouse, or retail space. Adding real estate to the business transaction likely increases the value. So it can be beneficial as an investment. Even if the actual business isn’t as successful as you’d like, the property is likely to hold or potentially even increase in value over time. Owning the building may also help you keep costs predictable through the years, since you don’t have to worry about landlords raising rent. However, it also usually comes at an extra initial cost and may entail maintenance expenses. So if you’re not up for maintaining the building and covering any associated costs, you’re likely better off buying a business that doesn’t come with a physical location.

Equipment and Furnishings

Whether the business space is owned or rented, it may also come with equipment and/or furniture. For example, if the business includes an office, it may involve computers, printers, desks, and chairs. If it’s an industrial facility, it may include custom manufacturing equipment. These items are often essential to business operations. So including these items in the purchase is often beneficial. Just check to be sure they’re in good condition and up to your standards. Otherwise, you may be paying extra for items that won’t last. And check the replacement value and maintenance costs to factor into your financial considerations as well.

Taxes, Contracts and Legal Documents

Before you buy an existing business, it’s important to make sure it’s legally sound by verifying business licenses and permits. Are there any outstanding tax debts or lawsuits? What about contracts that could impact your operations moving forward? If there are negative issues attached to the business, those may transfer over to you as the new owner. These can be incredibly expensive and may lead to more of a headache than the business is worth. However, if the taxes, business licenses, and contracts are all in order, it can help you sidestep a lot of the early paperwork that comes with starting businesses from scratch.

How to Handle Due Diligence

Due diligence is a very important stage of buying a business. After you’ve found a small business for sale that interests you in a marketplace search, you work with the owner to negotiate an initial agreement. Then you have a period to do research and make sure it’s a good fit. Here are some of the steps to take before you officially buy a business:

• Review financial documents: The business’s finances and business assets will help you understand the business valuation, expenses, and revenue potential. Get the balance sheet, financial statements, and any other documents from the current owner and compare the financial situation to the market value of the business. If there are too many outstanding expenses or other issues that might impact the value of the business, you might propose changes to the purchase price.
• Look at the business structure: The business structure is the legal makeup of the business. This can impact things like liability and taxes. So check the current legal standing and consult a lawyer, accountant, or professional if necessary.
• Learn about operations: The operations describe the processes that the business uses to deliver its products or services. Work with the current owner to find out how the company facilitates sales. And observe the team in action if possible. You’re looking to learn the efficiency of the business and make sure you’ll be able to sustain those processes going forward.
• Check contracts and legal information: When you buy an existing business, there’s a good chance they already have some contract agreements in place. These may be with vendors, partners, or clients. Go through all these small business documents to see how these agreements might impact your operations. For example, if you want to lower expenses by shopping for new vendors, existing contracts may get in the way. However, ongoing contracts with multiple clients may make the business opportunity more attractive.
• Review customer and employee data: Your team and customers can make a huge impact on the success of your business. If the business already has a strong team, you’ll be more likely to keep the current operations going. And if it already has a loyal customer base, that can help you maintain a good business revenue through the years.
• Consider seller financing: Seller financing can be a crucial factor during due diligence. It involves the seller extending a loan to the buyer to help finance the purchase. This option can provide access to capital that may be difficult to secure from traditional lenders and facilitate quicker sales. However, it is important to evaluate the risks, such as the potential for the seller to lose money if the buyer defaults.

Negotiation

Negotiation is a critical part of the business acquisition process. You need to negotiate the purchase price and terms with the seller, and this can be a complex and time-consuming process. It’s essential to work with a business broker or attorney who can help you navigate the negotiation process and ensure that your interests are protected.

Negotiate the Purchase Price and Terms

Negotiating the purchase price and terms involves reaching an agreement with the seller on the price of the business and the terms of the sale. This can include the payment structure, any contingencies, and the transfer of ownership. To ensure you’re getting a fair deal, it’s essential to have a clear understanding of the business’s financials, including its income statement, balance sheet, and cash flow statement. Consider hiring an independent business valuation professional to help you determine the true value of the business. This expert can provide an unbiased assessment, ensuring that the price you pay reflects the business’s actual worth. By thoroughly preparing and negotiating effectively, you can secure a business acquisition that aligns with your financial goals and operational needs.

How a Business Broker Can Help

A business broker is a professional who facilitates the sale of businesses. They may have access to a marketplace of businesses for sale that you can search or browse to find available opportunities, and they are well-versed in the financial and legal considerations involved in business acquisitions. You can also tell them exactly what you’re looking for in a business opportunity. And then they can keep an eye out for businesses that fit your needs.

Once you have found a small business that you’re interested in purchasing, a broker then helps you through the transaction. They can work on due diligence, outstanding legal issues, and negotiating the actual sale price for the listing. Think of them like a real estate agent, but for buying businesses instead of homes. Some of these professionals specialize in businesses in a particular industry or area. And others offer general services to anyone buying or selling a business.

To get help with your efforts to buy a business, use the Find a Business Broker feature from BizBuySell.

How do I evaluate the value of a business?

When looking at businesses for sale, you ultimately want to find a good value. Various factors, including earnings, assets, and market, can impact the business valuation. When it comes to earnings, look at the balance sheet and consider the state of the market to determine current and potential future earnings. Assets like property, product inventory, and equipment can also improve the value of the business. And a market approach involves looking at the industry and seeing what similar businesses are selling for in the area. The business you’re interested in may be priced slightly higher or lower than others in the marketplace due to factors like outstanding cash flow or valuable assets. But this approach usually provides a helpful starting point.

When considering financing options, a business loan from traditional lenders such as banks can be crucial.

How does this differ from buying a franchise?

Buying an existing business has some similarities to buying a franchise. But they’re ultimately two different options. Buying a business involves purchasing the brand, location, operations, and assets from the previous owner. Generally, people sell their small business if they’re looking to move, retire, or explore a different passion.

Buying a franchise means buying into an existing business system under the umbrella of a larger brand. There may be multiple independent businesses operating using the proven systems and brand recognition developed by the larger business. To learn more about available franchises in your region, use the Search Franchises feature on BizBuySell.

Image: Depositphotos

This article, "How to Buy a Business" was first published on Small Business Trends

Selling your business may feel like an overwhelming challenge. You can do it by focusing on three main requirements:

• Determine the value of the business.
• Collect documentation that supports that value.
• Prepare a statement that explains the reason you want to sell.

How Do I Prepare to Sell My Business?

The timing of the sale is tied to the preparation that goes into the sale. This all starts with a comprehensive checklist, which can lead to success as you take steps to sell a business.

You don’t want to hit the market with a price that is too high or too low. If you’ve listed the business for sale and there’s no interest, that’s a sign your value is too high.

You want to avoid having people drive by or view your business before you’re fully prepared. Additionally, you don’t want to get caught up answering questions about the business while you’re trying to manage it.

Here are a couple of prep steps for your checklist:

1. Enhance your property. This involves more than just improving curb appeal with cosmetic upgrades to the exterior; it also includes refreshing the interior.
2. Get a professional business valuation. If you come on the market with a price that’s too high, it’ll look like a fire sale when you start cutting the price. Potential buyers who arrive on the scene late might wonder why it’s been on the market so long.
3. Gather documentation that proves the asking price is reasonable. You’ll need things like financial statements and lease agreements. (See below for a complete list.)
4. Use a virtual data room. A data room is an online repository where you can store documents. Information can be grouped by topic in the data room. There are many VDR providers.
5. Choose the time when you want to sell.
6. Set a system to prequalify buyers. Serious buyers are going to want to do due diligence and see documentation. You don’t want to provide financial information about your company to tire kickers.

To learn more, download BizBuySell’s Guide to Selling your Small Business.

Selling a Business Checklist: Important Considerations

This checklist covers everything you need to know to sell a business.

Employ a Team of Professional Advisors to Start the Business Sale Process

Each member of your sales team is important. Each can provide information and assistance to prospective buyers.

What’s more, a great team can free you to run the business. Assembling a team is step one of the checklist for a reason – it’s directly tied to success.

Accountant

If you’re a sole proprietor, you may do your own financial recordkeeping. Hiring an accountant as part of the sale is important. Financial information must be provided in a professional manner. Any outstanding accounts receivable should be brought up to date.

Attorney for Legal Advice

Most attorneys specialize in certain types of law. There are attorneys that specialize in commercial sales. They know the issues that can throw a wrench in the works, and they know how to streamline the process.

Business Broker

Unless you’re selling a business to a family or an employee, you need a business broker. Yes, you’ll have to pay a commission. If the sale is less than $1 million, the commission will be about 10%. The business broker is a real estate and commercial specialist, on top of trends and in the know about people who want to buy or sell a business.

Valuation Expert to Determine Business Value

A professional valuation expert adds credibility to your price. The price is not just your opinion, it’s an objective appraisal from a person that knows the price of businesses for sale. That type of appraisal is respected by buyers.

Clarify Your Reasons for Selling

Obviously, you don’t want to say things like, “I’m just too overworked” or “I made a mistake buying in this location.”

You should develop a written statement about the reasons behind the sale:

• Retirement
• Relationship with partners/investors not working
• Owner illness or illness in the family
• The owner needs to move

Review Business Licenses, Contracts, and Agreements

You need to be proactive in organizing this information.

Lease agreements are straightforward to investigate, as they have clear start and end dates. Determine whether you need to create lease transfer agreements. Addressing license and contract agreements can consume significant time when a sale is in progress. Here are some examples:

• Is the business a corporation? If so, it may need to be dissolved as part of the sale.
• Did the business’s bylaws clearly outline the Termination Rules at the time of its establishment? It is essential to adhere to those rules.
• Are there multiple owners? All must sign off on a sale.
• Are you selling the business name?
• Are there licensing agreements? These can include things like software use agreements and general business operation licensing.

Make Sure You Have All the Documents You Need

This step can be daunting. It’s a lot of paperwork. However, once it is organized, it can be presented as a packet of information to pre-approved buyers. A packet can help a deal move forward faster.

Business Documents

These are the nuts and bolts documents that detail how businesses operate:

1. Equipment and facility maintenance agreements can include vehicles, factory machines, computers, and copiers.
2. Written business plan – describes the business from start to present. The plan should include a description of business operations, plus plans for the future.
3. Marketing plan – How the business is promoted
4. Existing customer and supplier contracts – If there are raw materials needed to make your product, you need to prove that there are no problems with supply, for example. Also, list any customers who have contracted for long-term goods or services.
5. Product price list – If needed. If your business is producing a product or products as assets for many years, include price lists from the past showing any increases.

Tax Documents

A person or entity that is buying a business will perform due diligence – gathering all the information they need. Tax documents, usually federal and state for 3 years, along with profit and loss statements, are a definite requirement to provide when selling a business.

Here are a few more:

Seller’s Discretionary Earnings

These are expenses that aren’t essential. A new owner may opt not to spend any money on these items, or spend less money. As part of your prep checklist, you/your accountant can go back into tax returns and move these, which will increase the value of the bottom line.

Examples:

• Travel expenses
• Vehicle – If the owner had a company car.
• Entertainment of customers
• Marketing campaigns, advertising
• Perks for workers

Financial Statements

These statements work as an annex to the tax return information and are part of due diligence. The buyer needs to know if credit agreements will be honored. The buyer also needs to know if creditors will be paid off as part of the sale.

• Credit agreements – for example, a supplier may extend credit for raw materials.
• Creditors – this can include information about loans for business equipment, physical property, software, and vehicles. It can include leases for property and equipment.
• Accounts Receivable – This information helps the buyer understand the cash flow of the business. The buyer can learn how much money is currently outstanding.

Intellectual Property Documents

These documents are the dot the I’s and cross the T’s items, and it’s extremely important that they are correctly executed. Intellectual property documentation is an integral part of the sales process.

This is where a commercial and business sales attorney experienced in the intellectual property documentation requirements is well worth the cost.

Government Notifications

The secretary of state must be notified about the sale of a business, including changes in LLC ownership.

The IRS and the Department of Revenue must be updated.

Legal Documents

1. Employment contracts. This one is so important. Does the new owner have to keep existing workers?
2. The physical legal description of business property – including property boundaries and deed description.
3. List of any stockholders and shareholders
4. Was the business owner/owners ever audited by the IRS? Include that information and the results.
5. Are there any pending lawsuits? These are liabilities, but you can’t hide them.
6. Provide documentation about the business registration and any needed permits and licenses.

Review Insurance Requirements

Make a list of all insurance policies (and policy numbers) connected to the business. Review the coverage time frames.

Some buyers could opt to retain the same insurance carrier or carriers. You’ll be responsible for canceling coverages that are no longer needed.

If a closing date has been scheduled, don’t call to set up the cancellation for that date. Many things can happen to change the date, and you don’t want to be left without coverage.

Create a List of Business Assets and Gather the Paperwork

Many business assets are visible. There is an office, office equipment, a warehouse or factory, a fleet of vehicles, and more.

But there are also financial aspects to the business that aren’t seen. Those are intangible assets. When you’re listing assets, you’ll also want to include documentation about intangible assets:

• Intellectual property – Do you have trademarks or logos, patents, or licensing agreements?
• Customers – How many loyal customers does your business have?
• Business Name Brand – How long has your business existed under a name? Make sure to let a buyer know about the strength of the business’s reputation.

Create a Complete Inventory List

An inventory list is important so that both you and the buyer know exactly what items are part of the business. This can include the obvious list of furniture and office/factory equipment, and raw materials and product inventory. These are all business assets.

Review Company Rules and Regulations

There are two main areas that a prospective buyer will want to know everything about: employee benefit plans, and the employee handbook.

Benefit plans include information about health insurance, retirement accounts, and possibly earned bonuses for workers.

The employee handbook spells out a code of conduct for workers. It also defines requirements for sick days and vacation time.

Discuss Supplier Contracts with the Potential Buyer

Many businesses have contracts with companies that provide either goods or services to them. For example, a business may contract with a cleaning company for service, or contract with a machine shop for parts.

Must these contracts be honored by the buyer? That requirement may be spelled out in the existing contracts. The contracts may have end dates. But the buyer may want to proactively extend a contract.

Discuss Methods of Waste Disposal with the New Owner

If a company may deal with hazardous chemicals or materials. It may produce scrap metal or plastic. It may generate large amounts of waste paper or cardboard. Do employees recycle paper and plastic?

What’s the plan for disposing of all waste produced by the business? The business should already have an established waste disposal system in place.

Finding out the business’s methods of waste disposal is part of due diligence by the buyer. Both you and the buyer should discuss this as part of the sales process.

Prepare for an Environmental Audit of the Business

An environmental auditor is trained to review a business for compliance with federal, state, and local environmental guidelines. Only a licensed environmental auditor can do this step.

Here are some of the things an environmental auditor will review:

1. Does the business have environmental permits? Are they up to date or due for renewal?
2. Has the business been in compliance with all environmental requirements?
3. If not, are there any remediation orders or is remediation ongoing? Government remediation orders are liabilities, but not a deal-breaker if they’ve been addressed and preventative actions are taken.

Share Details about your Business Software

Business software keeps things running smoothly. As part of due diligence, the buyer will want details.

Look at the Security of Information and Technology Systems

Does the business have a cybersecurity staff? Antivirus programs? Are there built-in software updates, and regular backup of data? Is there two-factor authentication for accounts in the iCloud, Gmail, and other platforms?

Prepare Details of All Software Used to Pass to the New Buyer

This should include info about all input and output programs, for example, Microsoft programs, Quickbooks, etc.

Share All Passwords, Credentials, and Codes

You’ll have to update ownership and contact information for software and website hosts.

Look at Domain Renewal Dates

Find out when your software renewals are due. Make a list for the new owner.

Make Sure the Buyer Obtains Business Permits and Licenses

Without the proper permits and licenses – paid up to date – a business can be shut down. A new owner needs a comprehensive list, which can include:

• General license
• Tax registration
• Health permits
• State-issued occupational licenses
• Liquor license
• Lotto license
• Reseller’s license
• Zoning and land use permits
• Health department permits

Notify Employees

Employees will rightfully be concerned about any changes in ownership. Employees should be notified early in the sale process.

For many owners, this may be the hardest step in selling your business. Tangible and intangible assets aside, the employees are the true assets of a small business. They should be treated as valued assets.

Let them know:

• If the business sells, will they keep their jobs?
• Will the way the company operates and/or company policies change?
• If employees will lose their jobs, will the present owner provide letters of recommendation?

Identify Any Outstanding Work

Are there any projects or production orders that haven’t been fulfilled? When are those contracts scheduled to be completed?

Outstanding projects can be viewed as liabilities by the buyer, especially if there’s a wrench in the works. Maybe a job is held up because of supplier issues, for example. Liabilities can be lessened if the seller proactively explains what’s being done to complete contracted work or service.

Consider Exit Strategies

The exit strategy provides the owner with an opportunity for due diligence, which should be completed prior to signing an agreement to sell with a broker. What are the tax implications of selling your business? When is the optimal time to sell the business? Where is the best place to invest the money after selling your business?

One of your most important sales advisors is your financial advisor. A financial advisor can help you make the wisest use of the proceeds from a business sale.

Prepare Succession Agreements

In the legalese of a succession agreement, the “tenant of record surrenders the right to a lease.” But in a business sale, that term is applied to the legal strategy that will be used to transfer leadership from one owner to the new owner.

Create Confidentiality Agreements

This is a job for your commercial sales specialist attorney.

You’ll need two types of confidentiality agreements:

1. Before the sale. This agreement will protect you from buyers who could misuse financial or privileged information about your company.
2. After the sale. Are there elements of the deal that you don’t want to be made public? Maybe your reason for selling your business is very personal, such as a family matter.

Prepare the Purchase Price and Sale Agreement Documents

The purchase and sale agreement document is the final part of the process. The purchase and sale can be broken down into parts, which can protect both parties:

• The Indication of Interest – This is signed by both parties and is often a requirement before a buyer learns about the business assets, gets copies of tax returns and other documents.
• The Letter of Intent – As a tool in selling your business, the letter of intent can be used as a sign of a pending purchase.
• Purchase Agreement – This is the final step when you sell your business. It will be signed by you and the new owner.

Sign the Closing Documents

The closing documents must be signed by both parties. Typically, the broker and attorneys representing each side will be present when the agreement is formally signed.

Increasingly, both residential and commercial sales aren’t transactions that occur face-to-face. In the real estate industry, transactions are conducted via Zoom or similar technology. The same people will be involved – buyer, seller, broker, attorneys – but they won’t be in the same room when the agreement is signed.

Why the Due Diligence Process is Important When Selling Your Business

Due diligence works both ways.

Of course, the buyer gathers all possible information about the small business.

When you’re selling your business, it’s just as important that you apply the same due diligence to your investigation into the prospective buyer:

Does the buyer possess the necessary assets to complete the purchase, or is there a risk that the deal could collapse? The seller certainly doesn’t want the thrill of reaching an agreement to diminish when they realize that the buyer lacks the financial resources required to acquire the business.

The seller has the right to do due diligence to determine the buyer’s net worth, to determine if the buyer can live up to the agreement.

What documents are needed to sell your business?

Let’s review the basic documents you’ll need to organize when you sell your business. It’s all part of the process, and this list can help you get started before you meet with a broker and attorney:

• Tax returns – businesses should provide tax returns from the past 3 years
• Lease agreements – gather these for equipment, vehicles, property, and office furniture.
• Copy of employee handbook
• A written statement about your reason for selling

How do you figure out the worth of a business?

The easiest way to do this is to seek the advice of a business valuation expert. That person’s advice will be impartial and based on experience and training.

Either way, you’re going to need facts and figures to support the sales amount. You can list all the businesses’ assets, both tangible and intangible, and put a value on them. You can review accounts, weighing future profits against costs, and put a value on them.

Unless you’re going to sell your business to family or an employee, you’ll hire a broker. A broker can also give you advice about determining the sales value. The broker may look at similar sales within the industry.

Who pays closing costs when selling a business?

Typically, in the real estate industry, the buyer is responsible for covering the closing costs. Real estate taxes are prorated, meaning that each party pays a share based on how many months of the year they owned or will own the property.

A sales tax will usually be paid to the state.

The buyer and seller can negotiate who pays the bulk of the closing costs as part of the sales agreement.

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This article, "Selling a Business Checklist" was first published on Small Business Trends

Often, you need to register a business name with the government. There is a process. You need to pick one that reflects your brand while at the same time giving your brand name legal protection in federal and state arenas. Here’s what you need to know about how to buy a business name for a brick-and-mortar or online site. And any filings.

To gain a better understanding of how to buy a business, download the BizBuySell Guide to Buying a Small Business. If you’re interested in selling a business, you can download the BizBuySell Guide to Selling Your Small Business.

Thinking of a Business Name

Do you want to know how to create a business name? You need to get started somewhere, and thinking of a business name involves:

• Keywords. A little market research and sorting through industry content helps with ideas.
• Consider your goods and services. For example, having your service mixed right in with your business name is a good starting point. Something like “Better Sales Web Design,” for a website.
• Acronyms are a good choice for a business name. Consider examples like NBC, which stands for the National Broadcasting Company.

Don’t pick a name similar to your competition. And don’t get fancy. A name should be easy to pronounce and spell. A secretary of state is a good resource.

READ MORE: How to Come up With a Business Name

Finding a Business Name

You might want to purchase a business name from another place. If that’s the case, there are name generators that use software. BrandBucket has a collection of carefully curated names from which you can choose.

Another way to check availability is a quick Google search. If your business structure is online, you’ll need to check the domain availability. Avoid capital letters and symbols with domain names.

Buying a Business Name Only

You need to make sure the business name you want isn’t taken. The rules that apply here are different in each state. Once you find the company name that suits you, it must be protected. First off check to see if the federal trademark or domain name is taken.

Here are some other things you’ll need to know when naming your businesses.

• At the state level, you might need to get an entity name. This depends on your location and business structure.
• The documents you will need to file on a national scale include a trademark. These offer protection for your trademarked name. No one in the US can use it. Get in touch with the United States Patent and Trademark Office. That’s for an LLC and other names.
• Business owners getting involved in e-commerce need a domain. These are also called a URL or website address. Register your domain name with a service that can tell you which ones you can use. These need to be renewed on a regular basis.

You can also use a Doing Business As (DBA) name. Most states require you to register this if you are using one. You can do business under an identity different from your personal name. You get a federal tax ID number to open a business bank account. Several businesses can use the same DBA in one state.

Once you confirm that a company name is available, you can proceed to register it directly with the secretary of state.

What if Another Company is Using my Preferred Name?

Depending on your business niche and products and services, the name you want might be taken. Getting another business to switch with you is hard but not impossible. Below are the steps you need to take to get the preferred name you want.

Find the Details of the Business Name Owner

The business structure makes a difference. For example, if the services are online, go here and enter the domain name from the website. Another way to find ownership of a business’s name is to go to directories, like HomeStars and Thumbtack.

The Better Business Bureau is another option for help. The bottom of the listing has the owner’s info.

Does the Business Have a Trademark?

The next step is to find out if the business or corporation has a trademark. The US Patent and Trademark Office grants both of these. There’s information there about whether you need an attorney. Also, I learned how to search using the Trademark Electronic Search System (Tess).

There is good information on an effective search here too. A business’s name doesn’t necessarily need to be trademarked. A trademark that is similar to yours or is used on related products, goods, or services can prevent yours from being registered.

The same applies if the search finds it is a live LLC or another name.

Negotiate a Purchase with the Owner

A trademark search can lead you to the owner. If that clears the criteria set out in the trademark office, you can negotiate a purchase of the name. Getting things in writing is critical. You’ll need an attorney, depending on the state laws.

Before you get to any contracts, work out a budget. Don’t forget that financial side.

Sort out the Legal Aspects and Change Ownership

There are legal aspects you’ll need a lawyer for. Different terms like trademarks, business names, and legal names need to be categorized. One gets used for a legal type of document. A trade name gets used for advertising.

Due diligence with terms is important. Consult a law firm as they have the necessary data, including how to change your business name.

Future-Proofing Your Business Name

The next step is to register and future-proof your business name in the right state. There are some business structures companies need to consider. These include a corporation or limited liability company LLC.

You’ll need to consider name registration options, such as obtaining a federal trademark, a DBA, and/or a domain name, especially if you’re starting an eCommerce business. Below is a list of the top 10 places where companies can buy a domain name.

Business Entity Name for a Limited Liability Company

You need to protect your business name in your state. This step involves what’s called an entity name. This is the way each state identifies your small business. Some states even require your entity name to be a good reflection of your business or corporation.

Check with your individual state about the steps to go through for an LLC.

Doing Business As (DBA)

You can also register a business with what’s known as a DBA name. These are also known as assumed, fictitious, or trade names. A DBA allows you to open a business bank account and provide you with a federal tax ID number. Sole proprietors often use a DBA, just like corporations and LLC businesses.

These help with customer service as they can be easy to remember.

A Federal Trademark

These allow you to register small business names in each of the 50 states and other countries. Registering your business name as a trademark has some bonuses. Registering in your state is cheaper than federally.

• When you register your trademark name, it’s on public notice.
• You can use the document to get registered in a foreign country.

You can get the right document for registration online.

Domain Name

This is the address of your small business on the Internet. It’s the digital address customers use to find out more about your goods and services. There are some excellent places to buy a domain name, such as GoDaddy. Make sure to go through the registration process so the domain name is yours.

Choose a name that integrates effectively with digital marketing tools such as SEO, email marketing, and social media content. The text is a vital component and should harmonize with other documents on your site.

Registering Your Business Name with Different Authorities

Registration with different authorities is important. However, it’s not mandatory for every business in every state. Checking with your attorney helps. The location of your business and company structure are important factors.

Generally, an LLC needs to register in the state where you do business. Other protections look after your business security at the state level. Look into what’s needed for a corporation.

Registering with Federal Agencies

Protection at the national level for your goods and services are done with trademark names. It’s important to check your business name as well as service names against the federal database. You can find that here. These are necessary articles so the name is protected.

Registering Your Business Name at State Level

You need to register the right document at this level too. A business entity name protects you so no one else can operate under your name. There are exceptions. These often involve your business structure. This can affect taxes.

Registering with Local Agencies

Typically, there is no need to file any documents or articles with local agencies, including city and county governments. However, if you are operating as a corporation, you may be required to obtain permits. In certain regions, you will need to register a DBA. It’s advisable to check with your local municipality.

Selling a Business Name

You might be selling your business and the name. It’s a big asset. Generally, if there’s no trademark, there’s no authority to sell it. Some buyers prefer a trademarked name since it holds more value. Some like a name that’s been around for a while.

How do I name my small business?

A business owner needs to determine what’s unique about your enterprise. Use acronyms or run words together. Think TripAdvisor. Make sure you can trademark it and it is specific. Check the necessary database and documents.

You can test it with Google Ad Words to find out how many searches it will get.

Can I have the same name as another business?

The answer is no. Mix-ups can occur, such as when two businesses register the same name at the state level. You can use the same name if you operate in a different state, but this may lead to consent and trademark complications.

How do you buy the rights to a business name?

Establish the trademark. Be sure there are no tax liens and lawsuits. Check for any debt.

How much does it cost to buy a business name?

Trademarks typically last for ten years, with costs ranging from $250 to $750. This is a reasonable investment when you consider the benefits.

How can I buy a business with no money?

There are several ways. One of the best is to look for seller financing.

Image: Depositphotos

This article, "How to Buy a Business Name" was first published on Small Business Trends

You may explore routes such as SBA loans, bank loans, or seller financing, not to mention modern online platforms such as Fundera and Lendio that specialize in facilitating loans to buy a business.

To learn more about buying an existing business, download your free copy of BizBuySell Guide to Buying a Small Business. You can also download the free ebook BizBuySell Guide to Selling Your Small Business for small business owners seeking a buyer for an existing business.

Use the BizBuySell Business for Sale feature to find a small business for sale or the Find a Business Broker feature to get help finding a small business.

Where to Get a Loan to Buy a Business

Here’s a quick glance at the diverse financing options available to entrepreneurs looking to buy a business, facilitating an informed decision right from the start.

• SBA Loans: Backed by the Small Business Administration, offering competitive terms for buying a business.
• Bank Loans: Traditional financing from banks or financial institutions with various loan amounts and terms.
• Seller Financing: The current business owner provides the loan, often with interest, allowing buyers to pay over time.
• Online Platforms like Fundera and Lendio: Specialize in connecting buyers with lenders for business acquisition loans.
• Conventional Business Loan: Offered by banks, providing a lump sum with repayment over several years, subject to higher standards.
• Rollover for Business Start-ups (ROBS): Utilizes retirement funds for investing in a business without taking on debt or paying penalties.
• Venture Capital: For high-growth sectors, offering equity-based financing and strategic partnerships.
• Business Incubators and Accelerators: Provide seed funding, mentorship, and resources beyond just financial support.
• Franchise Financing: Directly from franchisors or through partnered lenders, tailored for buying franchises.
• Government Grants and Loans: Includes SBA loans and other government-backed financial support for small businesses.
• Personal Network: Borrowing from friends and family under agreed terms.
• Leveraged Buyout: Using borrowed funds along with the business’s assets to finance the purchase.

How to Get a Business Acquisition Loan

One way to buy an existing business is through a business acquisition loan. Below, we outline some types of business acquisition loans available and some things you’ll need before you even get started looking for a loan to buy a business.

Requirements for the Loan Application Process

To begin with, here’s a list of application requirements and information that will be examined during the loan application process.

Financial Records

In order to get a loan to buy a business, you’ll need to prove the business’s financial stability. Financial records go a long way. This generally includes things like bank statements, current debt, and income. They demonstrate your ability to repay a lender.

Business Valuation

Lenders want to know that their investment in your loan is safe. So they generally won’t give you more money than a business is worth. As such, you’ll need to provide proof of the business’s value. This can be calculated using multiple factors, including revenue, assets, cash flow, and market analysis.

Business Plan

A business plan is what demonstrates your ability to continue running the business profitably. This type of plan generally includes your market, product or service, competitive analysis, and strategies for growth and marketing.

You also generally need to submit a business plan when getting a loan to start a business. So, it’s a similar requirement for business acquisition.

Earning Projections

What is the business expected to bring in moving forward? This obviously has a major impact on your ability to repay a lender. It’s common to use current revenue to create these projections. But there may also be other factors that you could use to demonstrate the likelihood of future growth.

For example, if your new business is in an emerging industry, use industry market projections to back up higher earning projections. Some due diligence can go a long way toward demonstrating your potential future earnings.

Track Record and Experience of the Borrower

It’s not just the business’s finances that your lender will want to analyze. They also want to know your own personal financial situation and experience. For example, if you’re debt-free and have successfully run businesses in the past, that bodes well for your ability to repay a business acquisition loan. However, excessive debt or a recent bankruptcy filing may serve as a red flag that makes it harder to secure financing.

Personal Finances

When it comes to your personal finances, potential lenders will review multiple factors to get the entire picture. Basically, they want to analyze your personal financial stability to gauge your ability to repay the loan. Here are some of the most important factors they’ll look at when an entrepreneur applies for a business acquisition loan.

• Credit score: Your credit score takes a variety of factors into account, like your ability to pay bills and the amount of outstanding and open credit you currently have.
• Tax returns: Your tax returns outline your income and expenses from the past several years. This shows lenders where your current income stands and where it comes from.
• Outstanding debts: The more debt you have, the more difficult it may be to repay a business acquisition loan. This doesn’t mean you have to be completely debt free. But a lender is going to want to see a full list.
• Cash flow: Your ability to bring in money plays a big role in your ability to get a business loan. They’ll want to know your personal income cash flow and that of the business you’re seeking a loan to buy.
• Collateral: Sometimes, a little extra assurance is needed for a lender to feel comfortable granting a business acquisition loan. Your personal assets like your home or investment accounts may serve as collateral.

Be sure to check out this video from Credit Suite that shows how to get a loan to buy a business:

Loan Type to Buy an Existing Business

There are a variety of loan types when seeking financing to buy an existing business. Here is a brief overview of each.

Conventional Business Loan

A conventional business loan generally comes from a bank or other financial institution. They often provide a large lump sum of cash that you pay off over several years. Terms vary, but these loans can come with competitive rates.

However, they are often difficult for very small businesses and new entrepreneurs to obtain. Banks consider business loans for this type of borrower to be fairly risky. So they generally check multiple factors like your credit score, business history, business plan, and assets.

And their standards are likely to be a bit higher than those of online or alternative lenders. They may also require you to put up significant collateral to lessen their risk.

Additionally, conventional loans often provide a large amount of funding — sometimes up to $500,000. This can be a positive for those looking for large business acquisition loans. But it’s often not ideal for small businesses looking for more manageable payments.

Seller Financing from the Business Owner

With seller financing, the current business owner essentially acts as the bank providing financing for the buyer.

They offer a loan that covers all or part of the purchase of the business. And the buyer repays that loan in pre-agreed-upon payments over time, with interest. The interest rate is often comparable to that of an SBA loan. And sellers generally still check credit scores and financial records before offering loans.

For the buyer, this provides an option for acquiring a new business without having to provide all the cash upfront. And it’s ideal for those that may not qualify for traditional bank loans. For the seller, this allows them to get a slightly better price for their business since they’ll also be able to collect interest over time.

However, the arrangement does come with risks for both sides. Terms vary, but sellers are generally able to re-take ownership of the business if payments are missed for a significant period of time. However, many sellers only offer business acquisition loans if they’re fairly confident in their company’s ability to make money.

Rollover of ROBS Loan

ROBS stands for rollovers as a business startup. This type of loan involves using funds from a 401(k) or IRA retirement account to invest in a new business. But it can be used as a way to fund acquisition of am existing business too.

It’s a complex option that requires an attorney or financial expert with experience in ROBS plans. Basically, you form a new corporation and set up a 401(k) for it. Then you can roll the money from your existing accounts into it and use it to fund the business.

This is an attractive option for some because it doesn’t involve interest. In fact, you don’t take on any official debt at all. It also does not involve the typical credit checks that come with applying for a business acquisition loan.

However, the risk for a ROBS loan is potentially losing your retirement savings. If the business you’re purchasing doesn’t work out, you’ve also lost your nest egg for the future.

Additionally, this money being used to fund your operations means that it’s not growing in the market. This may be worthwhile if the venture works out. But if not, you’re missing out on years of potential gains.

Comparing Loan Types for Business Acquisitions

The table below highlights the distinct characteristics and implications of various loan types, offering a comprehensive guide to making an informed decision that aligns with your financial strategy and business objectives.

How to Get an SBA Loan to Buy a Business

Another of the financing options open to entrepreneurs seeking to make a business purchase is the so-called SBA 7(a) loan. Here are some details about this option.

What is a Small Business Administration Backed Loan?

An SBA loan is similar to a conventional business loan in that it is offered by a bank or credit union. However, the funds are backed by the U.S. Small Business Administration and are specifically set aside as small business loans.

So the financial institution doesn’t have to take on as much risk. This allows banks to provide more opportunities for new entrepreneurs and small loans.

How to Qualify for an SBA 7(a) Loan

SBA loans are set aside for small businesses. And there are different types of SBA loans with clearly defined standards that vary by industry. But generally, you need to have fewer than 1,500 employees and less than $40 million in receipts each year. You also must be located or do business in the United States and operate for profit.

A borrower must also demonstrate the need for a business loan. This means you must have already invested personal assets before seeking a loan. And you must use the funds for a sound business purpose like operating expenses or growth.

Though your personal financial situation may not be quite as scrutinized with an SBA loan, you cannot qualify if you have outstanding debts to the federal government. And lenders can still consider your financial history when approving your application and deciding your interest rate.

Documentation Needed for an SBA Loan

Your bank or credit union will use a variety of factors to determine your loan eligibility and interest rate. Before applying for an SBA loan, gather the following documentation:

• Loan application: The SBA provides this application form to collect basic information from the borrower.
• Personal background and financial statement: These are also forms provided by the SBA. Complete the personal background statement and personal financial statement to provide information about your business and financial history.
• Business financial statements: When seeking a business acquisition loan, include the profit and loss statements and projected financial statements from the business you plan to purchase.
• Ownership and affiliations: Include a list of all proposed owners and affiliations you currently hold.
• Proposed bill of sale: Include the terms of the sale so the lender can confirm the intent to purchase and the amount needed.
• Loan history: Include any loans you’ve already applied for. This may include loans for the business and/or past ventures.
• Tax returns: Include your personal tax returns so the bank can confirm your income. And include at least two years of tax returns from the business to give them an idea of the income potential.
• Resumes from principals: Your professional history can impact the success of the business. So include your resume and resumes from any other principals who will be involved.
• Business overview: Include an explanation of the business and why the loan is needed.
• Lease: If there’s a physical location for the business, include the lease terms. If the business doesn’t yet have a lease agreement, include a proposed agreement signed by the landlord.
• Asking price: An application for a business acquisition loan should also include the proposed total sales price. Add a rundown of other costs like inventory, equipment, furniture, and fixtures.

Steps to Get a Loan Backed by the SBA

The process of applying for a business acquisition loan can vary from case to case. But there are some basic steps that apply to most entrepreneurs looking for SBA loans:

• Find an eligible lender: SBA loans are granted through third party lenders. Start by finding a bank or financial institution in your area that qualifies as an SBA lender.
• Gather your documentation: Go through the list of applications and documents above and gather them to submit to your lender.
• Wait for approval: Your lender will review your application and documents and submit them to the SBA. The SBA decides if they will guarantee the loan. And they work with the lender to agree upon terms.
• Close on the loan: If you are granted approval, you’ll need to agree on the terms. And you’ll have to complete any required extra steps like guaranteeing collateral.

Identifying Non-Traditional Funding Sources

In the quest for acquiring a business, exploring non-traditional funding sources can open up new avenues for potential business owners. Platforms like Kickstarter and GoFundMe have revolutionized the way entrepreneurs access capital, allowing them to pitch their business ideas directly to the public.

This method not only secures the necessary funds but also validates the business concept through community support.

Additionally, peer-to-peer lending platforms such as Prosper and LendingClub offer alternative financing options by connecting borrowers with individual lenders, often at competitive interest rates.

These non-traditional routes can be particularly beneficial for those who may not qualify for conventional loans or who are seeking more flexible repayment terms.

Leveraging Business Incubators and Accelerators

Business incubators and accelerators provide more than just funding; they offer a supportive ecosystem for startups and businesses looking to scale. These programs often come with seed funding, mentorship, office space, and access to a network of investors and industry experts.

For entrepreneurs aiming to buy a business, participation in such programs can not only assist in securing the initial capital but also provide invaluable guidance on navigating the business acquisition process.

Researching local and industry-specific incubators and accelerators can unveil opportunities to get your venture off the ground with both financial backing and a solid foundation for growth.

Assessing Franchise Financing Options

For those considering purchasing a franchise, specific financing options are available that cater to this unique business model. Franchisors themselves often offer financing programs to help with the initial investment, covering franchise fees, startup costs, and equipment purchases.

Additionally, some franchisors have partnerships with lenders who are familiar with the franchise model and can offer tailored loan products. Exploring these franchise-specific financing options can simplify the acquisition process, providing structured and supportive pathways to business ownership.

Understanding the Role of Venture Capital

Venture capital can be a viable option for acquiring a business, especially for those looking to invest in high-growth sectors. While venture capitalists typically invest in startups in exchange for equity, they may also be interested in financing business acquisitions that align with their investment thesis.

Engaging with venture capital firms requires a compelling business proposition, a clear growth strategy, and the potential for significant returns on investment.

For entrepreneurs with ambitious plans to scale an acquired business, venture capital offers not just funding but also strategic partnerships and access to a broader network.

Navigating Government Grants and Loans

Government grants and loans present an often underutilized resource for financing business acquisitions. Various government agencies offer grants, loans, and guarantees to support small businesses, particularly in sectors deemed critical or underserved.

The U.S. Small Business Administration (SBA) is a prominent example, providing SBA loans with favorable terms for business acquisitions. Additionally, state and local governments may have their own programs designed to stimulate economic development by supporting small business owners.

Investigating these government-backed options can uncover financially advantageous paths to business ownership.

Buying a Business with No Money Down

Finally you can buy a business with no money down. Here are the most popular methods.

Get Financing from Small Business Owner

As mentioned earlier, instead of getting an official business acquisition loan, you may secure financing from the current small business owner. Seller financing is often used to fund just part of a small business. But depending on your situation, they may provide the full amount that you can pay off over time.

This option does generally come with some interest. And you’ll risk losing the business if you can’t make payments on their terms. But small business owners often only offer to finance if they’re fairly confident in the business’s ability to earn.

Get Money from Friends and Family

You don’t necessarily need your own capital to pay for a business completely upfront. If you have friends and family who are willing to help, this can be an easy and low risk way to invest in a new business opportunity.

The risk with this type of business purchase is mostly personal. You may risk relationships or provide too much power to friends and family without business experience. This is why clearly outlining the terms before borrowing from friends and family is so important.

Get Funds from Leveraged Buyout

A leveraged buyout involves using borrowed money and using the assets of the company being purchased to cover the initial cost.

For example, you might secure a business acquisition loan to cover part of the purchase. And then you can leverage the business’s equipment or real estate assets as collateral to secure a larger sum.

This allows you to complete a business acquisition with little to no money down. But it also means you won’t have much equity in the business early on.

How much can you borrow to buy an existing business?

The amount of money included in a loan to buy a business varies depending on what type of financing you seek. With a traditional business loan, you may be able to get up to $500,000. With smaller or alternative financing, you can borrow smaller amounts as little as $5,000.

The amount you’re able to get also varies depending on factors like your business and credit history. When securing a loan to buy a business, the company’s profitability and financial history will also play a role. The lender will want to know that you’ll easily be able to pay back the loan with your earnings.

What kinds of businesses can you buy with SBA loans?

The SBA can help you secure a loan to buy a business in a wide array of industries and niches. The main qualifications are that the business must be for-profit and have an established history of at least two to five years. It should also qualify as a small business under the SBA’s guidelines.

Other factors like your access to capital and credit history may impact your personal eligibility. And the business’s income and need for a loan may also factor in. But the actual industry or type of business should not affect your ability to get a loan, outside of its impact on potential profitability.

How do you start a business with no money?

Starting a business without much cash in the bank might sound like a tall order, but trust us, it’s far from impossible. With a sprinkle of creativity, a dash of resourcefulness, and a good dose of determination, you can certainly kick off your dream venture without burning a hole in your pocket.

Here, we’re listing several methods you might consider if you’re thinking about taking the plunge without a big financial cushion:

• Exploring Government-aided Programs
  • SBA Loan Programs: These are special loan programs facilitated by the Small Business Administration (SBA) to assist budding entrepreneurs. The SBA partners with lenders to provide loans with competitive terms and lower down payments to help kickstart your business.
  • Grants: Depending on your business type and location, you may qualify for government grants. These grants can be a great way to secure startup capital without the pressure of repayment.
• Alternative Financing Platforms
  • Fundera: An online marketplace that connects small business owners with the best funding providers. It helps you explore various loan options and find the one that suits your needs best.
  • Lendio: Another online service that helps businesses secure loans by matching them with the appropriate lenders. It streamlines the loan application process and helps you access funds with more ease.
• Loans from Personal Network
  • Family and Friends: Seeking financial assistance from family or friends can be a viable option. This method generally offers more flexibility in terms of repayment schedules and interest rates. However, it’s crucial to maintain professionalism by documenting the loan and setting clear terms to avoid future conflicts.
  • Crowdfunding: Platforms like Kickstarter and Indiegogo allow you to present your business idea to the public. If people find your concept compelling, they can contribute funds to help you get started.
• Bootstrapping Techniques
  • Utilizing Existing Skills and Resources: Start with what you have. Use your existing skills and resources to establish the business. This might include offering consulting services, crafting products by hand, or utilizing free online marketing channels.
  • Lean Business Model: Adopting a lean business model can help in minimizing expenses. This means starting small, possibly from home, and gradually expanding as the business gains traction.
  • Bartering Services: In lieu of monetary transactions, consider bartering services with other businesses. This can help save costs and foster valuable business relationships.
• Partnerships and Collaborations
  • Finding a Business Partner: Collaborating with a business partner who can invest capital while you contribute skills, expertise, or resources can be a win-win situation.
  • Strategic Alliances: Forming alliances with established businesses can sometimes open doors to resources and client bases without requiring upfront capital.

Starting a business without financial backing requires a blend of creativity, resourcefulness, and strategic planning. By exploring these options, you can carve out a path to entrepreneurship that doesn’t necessitate a hefty initial investment.

Lastly, no matter what method of financing you choose, it may be beneficial to start a business that doesn’t require much startup capital. For example, an online business without a physical location is going to require less upfront investment. So, even if you do need a loan to cover equipment or supplies, it should be easier to obtain the full amount.

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This article, "Where to Get a Loan to Buy a Business: Navigating Your Options" was first published on Small Business Trends

Not all entrepreneurs need to start a business from scratch. Buying a business can give you a head start on things like brand recognition and operations. So where can you find a business for sale if you’re interested in going this route?

From California to North Carolina, there are plenty of places for potential business buyers to find a business for sale in the United States. Your choice depends on factors like price, business category, and location. So understand all the options before browsing for small businesses for sale.

Best Ways to Find a Small Business for Sale

From websites to personal contacts and beyond, there are many places an entrepreneur can find a business to buy. Here are a few of the best places to look for a business to buy both online and off.

Business Brokers

A business broker is an intermediary who helps buyers and sellers facilitate the sale of a business. Some business brokers work with businesses in a specific area or industry. So find one experienced in the category of business you’re interested in purchasing. Contact the business broker of your choice directly to find out if they’re working with any sellers with businesses relevant to your chosen categories. If you’re looking for a broker to help you find a business to buy, try the Find a Business Broker feature on BizBuySell.

Other Small Business Owners

Business owners you know may refer you to someone in their circle looking to sell a business. Some may even be interested in selling their own businesses. A quick message to a contact on LinkedIn or a conversation with a business owner at a networking event may open up new opportunities you didn’t even know existed. To connect with more business contacts in your area, consider joining a local chamber of commerce or finding online groups for businesses.

Your Larger Network

Your larger network of connections may also be a source of information on potential businesses for sale. This network may include business associates, co-workers, and even social media connections. Discuss your goals with these individuals or post about the type of business you’re looking for. Some may have suggestions or contacts that could be helpful.

Ads in Local Media or On Websites

Your local newspaper, online publications, and even message boards can be perfect places to find hyper local business listings. Business owners looking to sell may place classified ads looking for a qualified buyer or broker. So browse these listings or search relevant local sites by keyword. You might even place your own ads to see if any local business owners are interested in selling but just haven’t taken the first step yet.

Online Business For Sale Listings

Another place online to find businesses for sale is on a variety of sites specifically designed for this purpose. Here are some sites you may wish to visit while starting your entrepreneurial journey.

1. BizBuySell

BizBuySell is the largest online marketplace for businesses for sale. You can find franchise opportunities, independent businesses, and brokers. And there are a huge number of options for all price ranges and industries.

The marketplace has a Business for Sale feature to help you search for businesses to buy in your area. You can also download a free ebook called the BizBuySell Guide to Buying a Small Business. If you’re a seller, you can also the BizBuySell Guide to Selling Your Small Business.

2. BusinessesForSale.com

BusinessesForSale.com offers a marketplace of more than 58,000 businesses for sale. You can search by state, city, and keyword to find the most relevant opportunities.

Popular categories on BusinessesForSale.com range from gas stations to coffee shops to pet grooming services, all with different price ranges and revenue potentials. And there are even international opportunities available around the world.

3. BusinessMart.com

BusinessMart.com offers a place for buyers and sellers to connect. You can search businesses and franchise opportunities by industry, location, and amount you’re willing to invest.

The site also offers resources like a vendor search function and links to relevant brokers and funding options. So you can use the website as a hub for information as well as a place to find businesses for sale.

4. BizQuest.com

BizQuest.com provides access to franchises and businesses for sale, along with information on local brokers. You can search businesses for sale by keyword or even browse by city, state, industry, or brand. The site also offers specific options for buying franchises, assets, startups, and real estate.

Once you conduct a search to find a business for sale, you can review the list of results and even save the ones you are most interested in. Read the brief description and then click through for more details. BizQuest provides a simple form that then allows you to contact the seller directly.

5.BusinessBroker.net

Though the name can be misleading, BusinessBroker.net allows you to search for much more than a business broker. You can search the website for a business for sale by customizing the type of business you are interested in as well as your minimum and maximum budget. You also get to choose the location by state.

After completing your search, you can browse the results. Listings include asking price, cash flow and revenue numbers. You can read a brief description of each business before deciding whether or not to add it to your request info basket for more information.

6. Loopnet

Loopnet stands out because it does not just provide the opportunity to buy a business but also the chance to buy or lease commercial property. Enter the type of property you are seeking. Categories include office, industrial, retail, restaurant, specialty, healthcare and more. There are also listings for multifamily units for sale so this offers a chance for those who are in the apartment rental business too.

Once you’ve chosen the property type and location, you receive listings including a photo, square footage and pricing. There are even maps of the location of each property and demographics information about potential area customers including household income, absolute population and local consumer spending.

7. Exchange

Exchange is a website specializing in helping buyers find an online business for sale. Exchange allows you to search existing business websites. Business listings include online businesses in gifts and collectibles, fashion and apparel, services and consulting, home and furniture, health and beauty and many other categories.

Browse the business websites by category and then view the website listings you find most interesting. Listings include the URL, the asking price, average revenue, average profit and average sessions per month.

Exploring International Business Opportunities

In today’s globalized economy, exploring international business opportunities can open doors to diversified markets and potential growth. Websites like BusinessesForSale.com and BizQuest.com offer international listings, providing a broader perspective on available businesses across the globe.

Considering factors like international trade laws, cultural differences, and economic conditions can also guide your decision in choosing the right international business.

Assessing the Financial Health of a Business

Before finalizing a purchase, assessing the financial health of a business is crucial. Analyze the business’s financial statements, including balance sheets, income statements, and cash flow statements. Look for consistent profitability, manageable debt levels, and a solid customer base.

Tools like BizBuySell’s Valuation Report can aid in understanding the financial standing of the business, ensuring you make an informed investment decision.

Legal Considerations in Business Acquisition

Understanding legal considerations is key in the business acquisition process. It’s important to review any existing contracts, leases, and agreements the business is bound to. Also, be aware of any pending litigations or legal disputes.

Consult with legal professionals to ensure compliance with all regulatory requirements and to help navigate the complexities of business transfer laws.

Post-Purchase Transition and Management

After purchasing a business, the transition and management phase begins. Establishing a solid transition plan is essential for seamless operations. This includes understanding the existing business model, retaining key employees, and building relationships with suppliers and customers.

Consider training and support offered by the seller or external consultants to adapt to your new role effectively.

Leveraging Technology in Business Management

In the digital age, leveraging technology is vital for efficient business management. Tools like CRM systems, digital marketing platforms, and e-commerce solutions can streamline operations and enhance customer engagement.

Platforms like Shopify, which offers comprehensive e-commerce solutions, can be particularly beneficial for businesses with an online presence.

Networking and Community Involvement

Networking and community involvement can play a significant role in the success of your newly acquired business. Joining local business associations, chambers of commerce, and attending industry events can provide valuable connections and insights.

Engaging with the community through sponsorships and local events can also enhance your business’s visibility and reputation.

Ongoing Learning and Development

Continuous learning and development are crucial for staying competitive. Keep abreast of industry trends, market developments, and emerging technologies. Utilize resources like online courses, workshops, and seminars to enhance your skills and knowledge.

Staying informed and adaptable ensures the long-term success and growth of your business.

How much money do you need to buy a small business?

From industry type to location and brand value, the cost of a small business varies.

• Industry Variation: The cost of a business can differ greatly based on its industry.
• Price Range: Listings on business buying websites generally fall between $1,000 to $1 million.
• High-End Businesses: Those with substantial equipment and a physical presence:
  • Examples: Restaurants and gas stations.
  • Reason for high cost: They come with tangible assets like property, machinery, and inventory.
• Low-End Businesses: Primarily online ventures without hefty physical assets:
  • Examples: Dropshipping stores, affiliate marketing.
  • Advantage: Lower overhead and can often be managed from home.
• Mid-Range Businesses: Service-oriented enterprises with varying degrees of assets and expenses:
  • Examples: Consulting firms, local service providers.
  • Cost Factors: May involve a mix of tangible assets and client relationships, driving their value.
• Location Factor: The geographical location of a business can also influence its price, with businesses in prime areas often demanding higher prices.
• Brand Value: Established brands with a loyal customer base can command higher prices than newer or less-known entities.

What are the steps to buy an existing business?

If you’re contemplating taking the entrepreneurial leap by acquiring an already established business, it’s essential to follow the right process to ensure you make a good investment. Here’s a step-by-step guide to help you successfully purchase an existing business:

1. Find the right business. This initial step is pivotal. Start by understanding your own strengths, interests, and market knowledge. Next, search for businesses that align with these factors. Online business-for-sale platforms, networking events, or industry-specific brokers are good places to look. Make sure the business matches your predefined criteria before proceeding.
2. Negotiate the price. Once you’ve identified a promising business, initiate discussions about the price. Remember, while the seller has a set price in mind, it’s your job as a buyer to evaluate the business’s value comprehensively. Take into account its financial health, growth potential, market positioning, and any foreseeable challenges. If the asking price doesn’t match your valuation, be prepared to negotiate or even walk away.
3. Sign a letter of intent (LOI). This document outlines the preliminary terms agreed upon by both parties. An LOI demonstrates serious interest but isn’t legally binding, allowing room for further negotiations or due diligence.
4. Conduct thorough research and due diligence. Before sealing the deal, embark on an exhaustive investigation. Examine the business’s financial statements, scrutinize its cash flows, and delve into its client contracts, employee agreements, and any pending or potential litigation. Evaluate the business’s reputation through online reviews, customer feedback, and industry peers. A comprehensive understanding now can save you from unpleasant surprises down the line.
5. Secure financing. Purchasing a business often requires more capital than what’s readily available. If you can’t pay outright, explore your financing options. Traditional bank loans, Small Business Administration (SBA) loans, or even private investors can provide the necessary funds. Additionally, some sellers might offer financing terms, which can be beneficial but requires careful scrutiny.
6. Close the deal. Once you’re satisfied with your due diligence and have secured financing, you’re in the home stretch. At this stage, legal documents are drawn up, and assets are transferred. It’s wise to work with professionals, like business brokers or legal counsel, to ensure all details are meticulously handled.

For a deeper dive into the specifics of buying a business for sale, read How to Buy a Business.

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This article, "Where to Buy a Business: Everything You Need to Know" was first published on Small Business Trends

If the potential tax implications of selling your business seem daunting, a crucial first step is to have a business valuation performed.

This process of business valuation is not only an assessment of your company’s worth, assisting in determining an appropriate selling price, but it’s also a tool that can aid in forecasting the potential tax consequences of the sale.

The valuation, when carried out effectively, can often unearth strategies to mitigate your tax burden, such as strategic timing of the sale or utilization of certain tax provisions.

In the course of this article, we will endeavor to provide you with a comprehensive understanding of these considerations, helping you to make an informed decision when it comes to selling your business and navigating potential tax implications.

Learn more information about selling a business by downloading the BizBuySell Guide to Selling Your Small Business. Or if you’re buying a business, for more information download the BizBuySell Guide to Buying a Small Business.

How are Business Sales Taxed?

Business sales are taxed on the principle of capital gains, essentially the profit that you make from the sale of your business. The capital gains tax rate corresponds to your standard income tax rate, rendering capital gains as a form of income.

It’s important to note that the amount of capital gains may push you into a higher tax bracket, depending on the other income you have accrued throughout the tax year.

What Is a Capital Gain?

Simply put, a capital gain refers to the profit realized from an investment, which in this case, is your business. This can culminate in a capital gain when the sale of the business yields a profit, or a capital loss when it results in a deficit.

A capital gain or loss is established by the difference between your initial investment in the business and the final selling price.

Certain factors, like equipment depreciation or the cost of capital improvements, can affect the size of the capital gain and thereby your tax liability.

For instance, if you initially bought a business for $200,000, invested an additional $100,000 in upgrades, and sold it for $350,000, your capital gain would be $50,000.

It’s important to note that capital gains tax rates may vary based on the length of time the investment was held.

Capital Gains Tax on Selling a Business

Capital gains are generally taxed as ordinary income, yet the IRS draws a line between short-term and long-term capital gains. For those who’ve owned a business for less than a year before selling, your capital gain is taxed at your ordinary income tax rate.

If you’ve owned the business for over a year, the capital gain tax rate for long-term capital gains applies, which is currently 15%.

Strategies like specifying which part of the sale price applies to different business assets, such as inventory or real estate, can help reduce your overall tax bill.

This often involves the gradual sale of capital assets in an installment sale, thereby reducing the immediate tax impact.

Additionally, if reinvested properly, certain capital gains can qualify for tax deferment, such as through 1031 exchanges in real estate transactions.

7 Tax Considerations Before the Sale of a Business

Various tax strategies and considerations come into play when selling your business.

1 . A Stock Sale or an Asset Sale?

In a stock sale, the buyer acquires an ownership stake in the business by purchasing the seller’s shares. This method is typically employed in transactions involving C corporations and S corporations, given their structure.

Alternatively, an asset sale involves the disposal of the company’s capital assets, including physical property such as buildings and equipment, which by definition hold value beyond a single year.

Choosing between a stock sale or an asset sale carries different implications for the calculation and taxation of capital gains. Guidelines for short and long-term capital gains rates apply variably to stock and asset transactions.

Therefore, understanding these differences is crucial when considering the most tax-efficient approach for selling your business.

The choice between these two types of sales can significantly impact the net profit from the sale, underscoring the need for careful financial and tax planning.

2. Establishing Value of Business Assets

When calculating the value of business assets, such as a piece of machinery, it’s crucial to include the associated costs beyond the purchase price. These costs may involve installation and employee training expenses.

Keeping meticulous records of these costs can significantly aid in reducing your capital gains taxes. However, it’s important to note that routine maintenance costs can’t be factored into this calculation.

Understanding and accurately documenting these costs is essential when preparing to sell your business assets, as it can help minimize potential tax liabilities.

3. Purchase Price Allocation

Purchase Price Allocation, or PPA, is a method that business owners use to calculate the fair market value of a business. This strategy is particularly common during mergers and acquisitions.

The buyer “allocates” the purchase price among the various assets and liabilities of the company. At the same time, the seller computes the value of net assets, utilizing “good will accounting” to factor in the value of intangible assets, like the business name and logo.

This process aids in providing a more complete picture of the business’s worth. Additionally, a PPA often undergoes reviews by banking institutions to validate the accuracy of the allocation.

Understanding this process is crucial for both parties involved, as it directly affects the financial dynamics of the transaction, including taxation.

4. Type of Entity

The percentage of interest that individuals hold in businesses such as partnerships and corporations is treated as capital gain income when they sell that interest.

It’s a fundamental aspect of business tax law that applies to various forms of business organizations.

However, tax implications can considerably vary depending on the type of entity. For example, a sole proprietorship might face different tax rules compared to a limited liability company or a corporation.

Understanding these nuances is crucial. It not only impacts the capital gains tax rates but also the overall financial planning and decision-making process for both business owners and potential investors.

Here’s a quick comparison:

5. Tax-Free Stock Exchanges

In tax-free stock exchanges, the buyer swaps their own company’s stock for that of another company. It’s a strategic move used often in the business world.

The exchanged stock should comprise between 50-100% of the total stock owned by the buyer. It’s a way to acquire a company without an immediate cash outlay.

A variation of this strategy involves a corporation issuing new shares in exchange for money or other forms of property.

This approach is flexible and can be leveraged to expand a company’s capital base, or acquire necessary assets or services.

6. Income Tax Rates

The personal tax rates, potentially as high as 37%, can exceed the maximum long-term capital gains rate, currently set at 15%. Despite a capital gain being taxed at a lower rate, it’s still considered income and can influence the tax basis applied to your personal taxes.

This aspect, along with the ability to distribute the income earned over time, contributes to the popularity of installment sales when divesting assets.

Although not completely tax-free, installment sales provide a more flexible, tax-efficient method of asset disposal.

7. State Considerations

Small business owners need to understand that tax obligations don’t stop at the federal level; state and local taxes can also play a significant role.

Take Florida, for instance, where residents enjoy a lack of personal income tax. However, corporations in Florida are subject to a corporate income tax, making it essential for business owners to plan accordingly.

In contrast, places like New York City present a different taxation landscape, imposing a city income tax on top of other state and federal obligations.

Understanding these differences can greatly influence the financial outcome when selling a business.

Tips for Small Business Owners

The process of selling a business can be intricate, even more so when you’ve dedicated considerable time and effort into building a successful small business.

Navigating this complex process is crucial to ensure you don’t miss out on potential savings during the sale.  So knowing how to sell a business is extremely important. Here’s our best advice:

Consider Hiring a Tax Advisor for Your Business Sale

Hiring a tax advisor can provide immense value, especially if you are planning a business sale in the foreseeable future.

By involving them early in the process, they can guide you on potential steps to alter your business structure to yield maximum tax benefits, and better prepare for the sale.

If Your Business is a Sole Proprietorship, Sell Assets Separately

For sole proprietors, selling assets individually can be an effective strategy. It can help maintain your annual earnings at a stable level, ensuring that your taxable income remains consistent.

It provides a way to manage tax obligations without overwhelming financial fluctuations.

Consider Selling to Employees

Transferring your business to employees through a long-term installment sale or an employee stock ownership plan can be an advantageous approach. This sale could be extended to all current employees or a selected group of key personnel.

Not only does this ensure continuity of the business and job security for valued employees, but it also allows them to have a stake in the business’s future success.

Think About Gifting Some of the Business Sale Money to Family

Distributing some of the sale proceeds to family members can be a delicate task and may even instigate family disputes. For instance, if only one child is involved in the business, should they be the sole recipient of the gift, or should it be equally shared among all siblings?

Should the proceeds be protected for direct family members only, and if so, should such terms be articulated in prenuptial agreements?

Such decisions necessitate guidance from tax and legal advisors, especially as baby boomers reach retirement and need robust exit strategies.

Structure the Deal as an Installment Sale

Installment sales can be structured in two primary ways:

• Cash plus Seller Financing – The buyer pays a lump sum portion of the sales price and signs a promissory note for an installment purchase.
• Earn Out – The seller is paid as a “consultant” and stays with the business for 2-3 years, earning a salary.

Consider an Opportunity Zone

You can reinvest the capital gains from your business sale into a Qualified Opportunity Fund within 180 days of the transaction.

The benefits increase over time: if held for five years, 10% of the gain is tax-free. An additional 5% is excluded if held for seven years; after ten years, the total gain is tax-exempt.

Leverage Retirement Plans as Part of the Sale

If you’re nearing retirement, consider incorporating your retirement plans into the business sale strategy. You can contribute a portion of the sale proceeds to a qualified retirement plan like a 401(k) or an IRA.

This move could potentially defer taxes on those funds until retirement, depending on the type of plan and your age. It’s important to consult with a financial advisor to understand the implications and benefits of this strategy, as well as to ensure compliance with IRS rules and contribution limits.

This approach not only helps in tax planning but also secures your financial future post-business sale.

Do I have to pay taxes on the sale of my business?

Unless your business is operating at a loss, you’ll need to pay taxes on the sale proceeds. However, there are strategies available to defer the tax impact over several years, such as utilizing installment sales for certain assets.

The amount of tax depends on the structure of your business (sole proprietorship, partnership, corporation), the nature of the assets sold, and the gain realized from the sale. Tax rates vary based on long-term capital gains and ordinary income rates.

How much tax do I pay on the sale of my business?

Your tax liability will depend on whether you pay short or long-term capital gains rates. The short-term rate aligns with your tax bracket, while the long-term rate is fixed at the capital gains rate, currently at 15%.

How do you avoid paying taxes when selling a business?

To maximize tax savings, hire a tax advisor who understands the dynamic tax codes. Several other methods can help reduce taxes, including:

You can also reduce taxes by:

• Selling assets using installment sales
• Owner financing
• Gifting to family
• Selling to employees

How are capital gains calculated when selling a business?

Capital gain is calculated by deducting the original purchase price from the sale price. There are several ways to reduce your tax bill, like claiming deductions for capital improvements and equipment purchases.

If the business entity was held for less than a year, the tax amount aligns with the owner’s personal income tax bracket. If held longer, the current capital gains tax rate, 15%, is applicable.

How do I report the sale of my business on tax return?

To report the sale of your business on your tax return, use IRS form T2125, the Statement of Business or Professional Activities. This form provides the necessary framework for accurately documenting your business activities and sale.

It requires detailed information about the sale, including the date, sale price, and any associated expenses. Additionally, the form allows you to report income or losses from the business operations prior to the sale.

Ensure all information is accurate to reflect the true nature of the business sale.

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This article, "Selling a Business Tax Considerations" was first published on Small Business Trends

For those looking to transition out of the business or explore new ventures, there’s a burgeoning market of potential buyers. Conversely, for those seeking own a daycare business without starting from scratch, buying an existing center offers a viable pathway.

This guide provides essential tips and insights to help you navigate the complexities and opportunities of the daycare business market, ensuring your venture’s success in this rapidly growing industry.

Daycare Business for Sale: Tips for Sellers

Get Your Financials in Order

When preparing to sell your daycare business, the clarity and organization of your financial records are paramount. Any potential buyer will want a clear understanding of your earnings and expenses.

While you may already have access to this financial information, it’s often necessary to organize these details in a manner that is comprehensible to someone outside of your business. To achieve this, consider consulting with a bookkeeper or financial analyst.

Their expertise can be invaluable in aligning your financial statements, balance sheets, and other relevant financial documents, making your business more attractive and understandable to prospective buyers.

Clarify Your Enrollment Numbers

A key aspect that potential buyers will examine is your customer base, and the simplest way to present this is through your full-time enrollment numbers. This figure, which accounts for both full-time and part-time students in a weighted manner, offers a snapshot of your business’s client base.

Business Broker Molly Hanson of Baystate Business Brokers highlights the importance of this metric, noting in an interview with Small Business Trends that while not every center tracks this, full-time enrollment is a crucial factor for buyers.

Upgrade Your Facility

The physical appearance of your facility can significantly impact a buyer’s first impression. This aspect is even more crucial if you own the building.

Simple enhancements, such as a fresh coat of paint, can greatly improve the appeal of your facility. Hanson advises taking advantage of closed periods, like long weekends or holidays, to conduct these upgrades, especially if you’re selling the real estate along with the daycare center.

Separate Yourself from the Business

For a smoother selling process, it’s beneficial to minimize your role in the day-to-day operations, particularly in the child care industry where there are stringent regulations for directors. Hanson suggests that daycare centers with a separate director, as opposed to an owner/director model, often attract more buyer interest.

Consider hiring a separate director or an assistant director who can facilitate the transition, making your business more appealing and easier to transfer to a new owner.

Be Ready to Wait

The selling process of a daycare facility shares similarities with selling other businesses, but there are unique considerations, especially for owner/director operations.

The buyer will need to obtain certification or licensing from the state’s Department of Education, which can extend the timeline of the selling process. Patience is key, as these additional requirements can lead to a longer sale duration than initially anticipated.

Checklist for Sellers

• Organize Financial Records: Ensure all financial documents are current and well-organized.
• Clarify Enrollment Numbers: Present a clear picture of full-time enrollment figures.
• Facility Upgrades: List any recent improvements or necessary upgrades.
• Operational Structure: Detail the business’s operational structure, whether owner/director or owner with a separate director.
• Licensing and Certifications: Document all necessary licenses and certifications for operating a daycare.
• Market Analysis: Provide a recent market analysis of the daycare industry in your area.
• Transition Plan: Outline a plan for transitioning the business to new ownership.

Daycare Business for Sale: Tips for Buyers

Familiarize Yourself with the Industry

Before diving into the purchase of a daycare business, it’s crucial to understand the specificities of the child care industry. This sector has unique licensing and certification requirements that differ significantly from other industries. For those new to this field, it’s essential to conduct thorough research on the Department of Education’s requirements in your state.

This knowledge is vital to fully comprehend the responsibilities and regulations involved in running a daycare, ensuring you’re well-prepared for the challenges and obligations of the business.

Build a Relationship with Your Lender

Financing is a common route for many business buyers, but navigating this process can be daunting without a trusted financial partner. Establishing a good relationship with a lender can facilitate the financing process. If you already have a connection with a financial institution, this can be advantageous.

A lender who clearly explains the requirements and helps you through the application process can be instrumental in securing the necessary funds for your purchase.

Have Some Faith

Due to the operational nature of daycare businesses, it might be challenging to fully assess the facility during operational hours. Consequently, when considering a daycare business for sale, a degree of faith is necessary, especially if the facility’s condition and enrollment numbers align with your criteria.

While you may not see the business in full swing, trusting in the presented facts and figures is part of the early decision-making process.

Do Your Research

The due diligence period is a critical phase where you can delve into the finer details of the business. This is your opportunity to gather more specific information from the current owner or operator.

Business Broker Molly Hanson emphasizes the importance of examining the business’s financial and operational history during this period to gauge its stability and potential for future success.

Practice Patience

The purchasing process in the daycare industry often involves the Department of Education, which can significantly influence the timeline. As Hanson notes, the certification process with the state’s education department varies by location and can be lengthy.

Patience is essential, as there are limited ways to expedite this process. Therefore, if you’re looking for a quick business acquisition, the daycare sector might pose challenges. It’s important to account for potential delays in your plans and be prepared for a process that may take longer than anticipated in other industries

Checklist for Buyers

• Industry Familiarity: Assess your understanding of the daycare industry.
• Lender Relationship: Establish a strong relationship with a potential lender.
• Facility Evaluation: Plan visits to evaluate the physical condition of the facility.
• Due Diligence: Conduct thorough due diligence regarding the business’s financial health and stability.
• Licensing Process: Understand the licensing process in your state and start the application if necessary.
• Business Plan: Develop a business plan tailored to your vision for the daycare.
• Transition Strategy: Plan for a smooth transition, including staff retention and parent communication strategies.

Key Considerations in Buying and Selling a Daycare Business

As you navigate the complexities of selling or purchasing a daycare business, it’s essential to understand the distinct considerations and steps involved for both sellers and buyers. The following comparison table provides a concise overview, highlighting the key aspects each party should focus on during the transaction process.

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This article, "How to Sell Your Daycare Business – or Buy One" was first published on Small Business Trends

While prime-based SBA loan rates have increased, deal structures are evolving to bridge financing gaps. Lenders require more seller financing, typically 10–20% of the purchase price over 5–10 years. Cash buyers still have an advantage in today’s environment, where speed is critical. The median days on the market dropped from 182 days in Q1 2023 to 164 days in Q3 as motivated buyers and sellers found ways to close deals.

Median sale prices rose 10% to $329,000, reflecting steady demand for healthy businesses. Small business valuations remained relatively flat as cash flow multiples declined 1.4% and revenue multiples rose just 1%. This indicates buyers are still cautious amid economic uncertainty.

Seller confidence remains low, unchanged from 2022 at a score of 46, near the record low of 45 in 2020. Most cite inflation, rising overhead costs, and minimum wage increases as negatively impacting profits. High-interest rates are also concerning, with 64% saying it has hurt their business. As a result, 46% have raised prices, and 40% have delayed expansion plans.

Buyer confidence also dropped but remains mildly optimistic at 52, as 73% believe they can buy at an acceptable price. Manufacturing saw a surge in demand and prices, with the median sale price up 28% in Q3. Retail struggled with 18% lower prices but 6% more deals as buyers scooped up bargains. Restaurants grew revenue by 20%, but profits dropped due to higher costs.

The Insight Report expects the high-interest rate environment to persist into 2024. Seller financing will become increasingly important to bridge valuation gaps. SBA loans are still the top financing method, though they take longer to close. With 38% of owners nearing retirement age, a steady stream of businesses are expected to come to market in the coming years.

Digging Deeper into Key Sectors and Trends

The manufacturing sector led in growth and financial performance. Acquisitions grew 13% and median sale price jumped 28% in Q3, while median revenue rose 9.5% and median cash flow grew 10%. With more companies reshoring production, manufacturing should continue expanding.

Conversely, the retail sector struggled amid shifts in consumer spending and weaker sales. Transactions grew 6%, but median prices dropped 18%. Median revenue declined 15%, and cash flow fell 5.4%. More deals suggest opportunistic buyers are acquiring discounted retail businesses.

Restaurants saw a 7.4% increase in median prices as sales grew, with median revenue up 20%. But median cash flow dropped 3.6% as higher food and labor costs squeezed profits. While the leisure sector added over 90,000 jobs in September, profitability remains challenged.

Service business demand cooled slightly, with transactions down 4% and median prices off 6.4%. Median revenue dipped 6%, while cash flow was flat at 1% growth. This could signal a correction as buyers diversify into sectors like retail and restaurants.

Evolving Financing Landscape and Deal Structures

With capital costs rising, the financing landscape is evolving. Seller financing is bridging valuation gaps, with buyers expecting to carry 10–20% of the purchase price. Creative earnouts and seller notes are also being utilized.

As rules tighten, SBA loans still dominate but can take 60–90 days to close. Lenders are requiring higher debt service coverage ratios, leading to more seller financing. Overall, deals are taking longer, but buyers and sellers are finding ways to adapt.

Silver Lining for Buyers: Opportunity for Value

Despite economic headwinds, healthy businesses remain in demand. Buyers who are able to act quickly with all-cash offers have an advantage.

The median days to sale dropped to 164, showing motivated buyers and sellers. With valuations flat, buyers are finding opportunities for more favorable pricing.

Almost 40% of buyers see current conditions as a chance to acquire quality businesses amid the wave of Baby Boomer retirements. And over half of buyers have prior business ownership experience, signaling an experienced pool of entrepreneurs ready to pounce.

The BizBuySell Insight Report provides an in-depth quarterly view into the health of the small business transaction market. As the landscape evolves in 2023, buyers and sellers adjust strategies to transact despite macroeconomic challenges.

The BizBuySell Insight Report

The BizBuySell Insight Report provides a quarterly pulse on the health of the U.S. small business economy. Analyzing data from 50,000 businesses for sale and sold nationwide, the report tracks closed transactions, valuation multiples, and other key indicators.

With transaction data reported voluntarily by brokers, the Insight Report covers 70+ markets across 65 industries. As the largest online business-for-sale marketplace, BizBuySell leverages its platform to produce this nationally recognized benchmark report.

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This article, "Modest Small Business Acquisitions Growth Amid High Interest Rates and Inflation" was first published on Small Business Trends

Many small business owners’ dreams are to sell their company for a lot of money. What can you do today to make the likelihood of that happening and hit the payday that you want?

On The Small Business Radio this week, I talked to John Vitti,  who is a serial entrepreneur who after successfully launching and exiting three companies (at the multimillion dollar level) within the consumer space, is now the CEO of his newest venture called VersusGame, an entertainment prediction-based gaming app that puts trending topics about celebrities, pop culture and sports a classic “this” versus “that” competition. Since its launch in 2019, VersusGame has grown significantly, with millions in cash prizes to millions of players.

John hopes when people start a business their reason isn’t just to sell it because this may not align with helping their customers. But he adds “if you are successful and create value, someone will buy it.”

When starting his businesses, John created value by solving problems that people already have. In his last B2B tech business where companies had huge sales teams, he automated portions of this process to make it more profitable.

To prepare for an exit, John says that it is best to have a “partner eat you”. This means that long before you want to sell your company, you must create relationships with a business you already know for several years.

To get ready, make sure your financials are correct and match your tax returns. John says that selling is not for the faint of heart. He adds that “typical issues are stress, lack of sleep through due diligence, changing deal terms; It’s the worst! I would not wish it on my enemies. It’s like a high school dance, but with a lot of money on the table. Solid relationships with your board and attorney will help when it gets bumpy.”

Strategies for Selling Your Business Successfully

Selling your business for a substantial profit is a goal many small business owners aspire to achieve. Here are some strategies you can implement to increase the likelihood of a successful sale and the payday you desire:

• Create Value from the Start: When launching your business, focus on creating value for your customers by addressing their existing problems or needs. Building a business with a genuine commitment to helping customers is more likely to attract potential buyers in the future.
• Automate and Optimize: To enhance the value of your business, consider automating and optimizing key processes. Streamlining operations and making them more profitable can make your company more attractive to potential buyers.
• Build Long-Term Relationships: Establish and nurture long-term relationships within your industry. Developing connections with other businesses that you may consider selling to, even years in advance, can facilitate a smoother acquisition process when the time comes.
• Financial Accuracy: Ensure that your financial records are accurate and aligned with your tax returns. Clear and transparent financials are crucial during the due diligence process when selling a business.
• Prepare for the Challenges: Understand that selling a business can be a complex and challenging process. Be prepared for potential stress, sleepless nights, and changing deal terms. Cultivate strong relationships with your board and attorney to navigate these challenges effectively.
• Solidify Your Board: A supportive and knowledgeable board can provide valuable guidance during the selling process. Consider assembling a board with experience in mergers and acquisitions to help you make informed decisions.
• Timing Matters: Be mindful of the timing of your exit strategy. Waiting for the right moment when your business is at its peak can lead to a more lucrative sale.
• Listen and Learn: Continuously educate yourself on the intricacies of selling a business. Learn from the experiences of successful entrepreneurs who have gone through the process before you.
• Stay Committed to Value: While the goal may be to sell your business for a profit, always prioritize delivering value to your customers and clients. Success and profitability often attract buyers who see the worth in what you’ve built.

Ensuring a Smooth Transition

Once you’ve successfully sold your business, it’s essential to ensure a smooth transition for both you and the new owner. Here are key considerations for a seamless handover:

• Document Everything: Provide comprehensive documentation of your business operations, processes, and customer relationships to the new owner. This documentation will be invaluable during the transition.
• Employee Communication: Keep your employees informed throughout the process to minimize uncertainty and maintain morale. Introduce them to the new owner and outline any changes in their roles or responsibilities.
• Customer Relations: Communicate the change in ownership to your customers transparently. Assure them of continued quality service and support under the new management.
• Contracts and Agreements: Review all contracts, agreements, and leases associated with your business. Ensure they are legally transferred to the new owner or appropriately terminated.
• Financial Transition: Assist in the financial transition by facilitating the transfer of accounts, payments, and financial records. Work closely with your accountant to ensure a seamless handover.
• Training and Support: Offer training and support to the new owner during the initial phase of their ownership. Share insights, strategies, and any specialized knowledge that can help them succeed.
• Legal Compliance: Ensure that all legal requirements for the sale are met, including necessary permits, licenses, and regulatory approvals.
• Post-Sale Involvement: Discuss the possibility of your involvement post-sale, whether through consultancy, advisory roles, or non-compete agreements. Define your level of commitment and engagement.
• Celebrate the Transition: Consider hosting an event or announcement to celebrate the transition with your employees, customers, and partners. It can help build goodwill and ensure a positive start under the new ownership.
• Embrace Change: Embrace the change in your own life as well. Whether you’re retiring or pursuing new ventures, use this transition as an opportunity for personal growth and new experiences.

Safeguarding Confidential Information

Before, during, and after the sale of your business, protecting confidential information is paramount. Here’s how to safeguard sensitive data:

• Non-Disclosure Agreements (NDAs): Require potential buyers to sign NDAs before sharing any confidential information about your business. This legally binds them to keep sensitive details confidential.
• Data Encryption: Implement strong data encryption measures for digital records, financial data, customer information, and proprietary processes. This adds an extra layer of security to prevent data breaches.
• Limit Information Access: Restrict access to confidential information to a need-to-know basis within your organization. Only provide access to employees or advisors directly involved in the sale process.
• Secure Physical Records: If you have physical documents containing sensitive data, ensure they are stored securely. Consider using locked file cabinets or off-site storage for added protection.
• Digital Security: Invest in cybersecurity measures to protect your business’s digital assets. Regularly update and patch software, use firewalls, and conduct security audits to identify vulnerabilities.
• Employee Training: Train your employees on the importance of confidentiality during the sale process. Emphasize the consequences of unauthorized information sharing.
• Third-Party Vendors: If you involve third-party vendors or consultants in the sale process, ensure they also adhere to strict confidentiality agreements and cybersecurity protocols.
• Data Room: Create a secure virtual data room (VDR) for sharing confidential documents with potential buyers. VDRs provide controlled access and monitoring of shared information.
• Data Retention Policy: Develop a data retention policy that outlines how long you will retain sensitive data and when it should be securely disposed of after the sale.
• Post-Sale Data Removal: After the sale is completed, meticulously remove or transfer all confidential data from your systems to prevent any inadvertent leaks.
• Legal Recourse: Be aware of your legal rights and remedies in case of a breach of confidentiality. Consult with legal counsel to understand your options.
• Continued Vigilance: Maintain vigilance even after the sale is finalized. Periodically review and update your security measures to adapt to evolving threats.

Evaluating the Timing of the Sale

The timing of selling your business can significantly impact its value and success. Consider these factors when evaluating when to sell:

• Market Conditions: Assess the current market conditions and industry trends. Selling during a favorable market can result in a higher sale price.
• Business Performance: Ensure that your business is in a strong financial position. Higher revenues, profitability, and growth can increase its attractiveness to buyers.
• Personal Goals: Reflect on your personal and professional goals. Are you ready to move on to new ventures or retirement, or do you want to continue running the business?
• Market Research: Conduct market research to identify optimal timing. Are there potential disruptors or emerging technologies that could affect your industry in the near future?
• Exit Strategy: Define your exit strategy and goals. Do you want a quick sale or are you open to a gradual transition where you stay involved for a period?
• Preparation: Adequately prepare your business for sale. This includes organizing financial records, improving operational efficiencies, and addressing any legal or regulatory issues.
• Advisor Consultation: Seek advice from financial advisors, business brokers, or M&A specialists. They can provide insights into market timing and potential buyers.
• Competitive Analysis: Analyze your competitors and their recent sales. Understanding their strategies and timing can inform your decision.
• Tax Considerations: Consult with tax professionals to understand the tax implications of a sale. Timing can affect capital gains tax and other tax liabilities.
• Due Diligence: Be prepared for due diligence by potential buyers. Ensure that your business is transparent and all documentation is readily accessible.
• Customer and Employee Impact: Consider how the sale will impact customers and employees. Communicate transparently to minimize disruptions.
• Long-Term Viability: Assess the long-term viability of your business. Is it better to sell now, or can you enhance its value with further growth and development?
• Emotional Readiness: Evaluate your emotional readiness for the sale. Selling a business can be emotionally challenging, so ensure you’re mentally prepared.
• Legal and Regulatory Landscape: Stay informed about any changes in laws or regulations that could impact the sale process.

Conclusion

In the journey of selling your business, careful planning, strategic decision-making, and unwavering determination are your most valuable companions. As we conclude this exploration of selling a business, remember that the path to a successful sale is not without its challenges and complexities. However, with the right preparation, mindset, and expert guidance, you can navigate these obstacles and achieve your desired outcome.

Selling a business is a multifaceted endeavor that requires a blend of financial acumen, market awareness, and emotional resilience. It’s a journey that encompasses setting clear goals, identifying ideal buyers, preparing your business for scrutiny, and negotiating terms that reflect its true value.

Throughout this process, maintaining transparency, building trust, and fostering strong relationships with advisors, buyers, and stakeholders are vital. The decision to sell should align with your long-term vision, personal goals, and market conditions, ensuring that timing and preparation are on your side.

Ultimately, selling a business can be a transformative experience that opens new doors, enables you to reap the rewards of your hard work, and paves the way for your next venture or retirement. Embrace this opportunity with confidence, armed with knowledge and insights, and may your journey be both financially rewarding and personally fulfilling.

Listen to the entire radio interview on how to sell your business for more money.

Image: John Vitti

This article, "How to Sell Your Company for More" was first published on Small Business Trends

That’s because you’ll need concrete and detailed records to prove the value – the price – you put on your business.

You will also have decisions to make about how to sell your business. Use a business broker? Sell on your own? Choose a lawyer? You can start your investigation into those decisions now. Even if your plan to sell is a year or two away.

For more on this topic download BizBuySell’s Guide to Selling your Small Business as a training tool. To sell your small business go to Sell a Small Business on BizBuySell. If you’re interested in buying a business instead, you can also download their Guide to Buying a Small Business.

Why Sell a Business?

Let’s say you have a daycare business for sale. Your reasons for selling your business are important to you. The reasons may also be important to your potential business owner. The reasons must make sense, and not discourage, prospective buyers.

Here are some future business owners would easily understand:

1. Retirement
2. Partnership didn’t endure
3. Illness or death

Other reasons for selling your business may be harder to convey in a positive manner. Is the business doing so well that you as company owner feel constantly overworked? Have you burned out as a result? If those facts are presented in the proper context, a buyer may become even more eager to buy!

What about the timing of business sales? When is the best time to sell?

During years of profitability and performance – Why sell when your company is making money? The short answer is that the company is much more attractive compared to a company that is losing money. Did you get a really nice contract? A contract that would convey to a buyer? Might make it a perfect time to sell.

Selling a Small Business

The size of your company is a factor in selling. That’s because a buyer is typically seeking a certain size business to purchase.

But other than that, here’s a case where size doesn’t matter when you’re selling a small business. The steps are the same or similar.

11 Key Steps to Sell Your Business

Selling your business is a complex process, whatever the business size, and there are lots of steps to take before a business can be sold. Here are 11 of the most important steps in that process to get you started.

1. Sort Out All Accounting Records

Your accounting records should mirror accounting standards. That way, your profits can be easily compared to similar businesses. That’s because the same process has been used to maintain and compile the accounting records. As long as your accounting records have followed standards, your financial data can be compared to industry benchmarks.

With that said, though, you may want to additionally separate some “expense” that affect your bottom line. These would be expenses that a buyer may not incur. That’s because a buyer may opt to run things a little differently:

Those types of expenses can be termed “discretionary expenses.” Such as:

1. Travel costs – Maybe as you established your company you attended national conventions or sales venues.
2. Entertainment costs – Similarly, as you worked to get established to feted potential clients.
3. Bonuses – Which you paid to top performers.
4. Business vehicles – Perhaps you leased or purchased a vehicle or vehicles for company use.
5. Medical insurance – Did you pay for medical insurance for yourself and/or family members, set up through the business?

2. Hire a Valuation Expert and Find Out Your Business Worth

When you sell a house, you use a real estate appraisal to prove the price you set. That process is fairly straight-forward. The real estate agent can compare similar sales, and put a value on your house that may include appliances, age of roof, size and grounds.

To sell your business, you need a specific business valuation expert. That’s because there can be many factors that affect the price. Here are examples of information the business valuation expert may use to help you set a price:

1. Your business tax records for the last four years.
2. The value of your inventory
3. The value of any business equipment.
4. Proof of your customer base.
5. Proof of any long-term contracts to purchase your goods and/or services.

3. Work Out an Exit Strategy

How are you going to handle the profit from your business sale? You’ll most likely need a financial manager or specialized CPA for this part of the plan.

Typically, you’ll hear the words no one likes to hear – Capital Gains. How to handle capital gains must be part of your exit strategy.

Many business sales are considered asset sales. An asset sale is usually taxed at the long-term capital gains rate, which is 15%.

Determining the value of assets can be part of the negotiations as you sell your business and make an exit plan for the money. Assets are grouped by type, such as capital assets, depreciable property, and inventory or stock.

The dollar value that you and the buyer agree upon for these assets can affect the amount of capital gains you pay. This can be part of the sale negotiation process and this why shouldn’t sell your business with no exit strategy.

4. Market Your Business

Are you going to sell on your own? Are you going to hire a business broker? Either way, you can contribute to the process and it’s important that you do.

Create an executive summary. This is where business sellers can be proactive and answer any questions future owners may have. Think of it as a business diary. An executive summary is an account of the life of the business, from start to present. To cover all the topics, describe any products and define the supply chain, with an eye to answering potential questions.

You don’t need official numbers in the executive summary. In fact, financial information about the business should only be given to a buyer that is pre-qualified to buy.

The executive summary is the spot for detailing information and answering questions about your reasons for selling.

Who’s going to market the business, you or a business broker? Either way, a marketing plan should be developed. If you’re going with a business broker, you can offer your ideas while respecting the broker’s expertise.

5. Put Your Business on the Market

Before you list your business, share your plans with family members or employees. You may even share information with trusted customers, if you think one would be interested in the purchase.

However, letting people know your plans to sell your business can be dicey. Could you cause a mass exodus of employees? Or worse, customers? Business owners should be careful letting the cat out of the proverbial bag.

One of the easiest ways to list a business on the marketplace is via Sell Business on BizBuySell. However before you take that step, you should think carefully about developing an explanatory letter for customers, as well as informing employees. Because all of those people are going to find out about the sale.

What about the price? Just as with a home sale, too high or too low is a mistake. Too high, and the property is one the market too long. Potential business owners could look at the date of the listing and start to wonder what’s wrong with the business.

Too low, and it looks like a fire sale. However, you can justify a low price if there’s a reason to sell a business fast – such as unexpected illness or death. This is information to convey to a broker, if you’re using a broker.

You should know that the time frame for sale of businesses is typically from six months to two years. Most sales of businesses are closer to the two-year mark. So, don’t let the passing months without a sale prod you. Stay firm on the price.

6. Sift Through Prospective Buyers: Find the Perfect Business Owner

Financial screening is of utmost importance. Those tire-kickers can be more than annoyances if you don’t prequalify each prospective buyer.

Do you really want tire kickers to get inside financial information about your business? And do you want to waste time providing that information, and having showings of the company?

Talk this over with your broker. You can put this stipulation in your Agreement to Sell that you have with the broker.

The broker can also advise you on if and when to accept an offer. The art of a deal includes negotiation. Few buyers would expect you to take the first deal that’s inked. A broker may pressure you, but the decision is yours.

Keep in mind, though, if someone offers the asking price and your decision is not to take the money, you’ll owe the broker fee.

7. Respect The Due Diligence Process

The buyer is going to wants lots of information and the topics covered mostly deal with financials. Don’t lose patience. The buyer wants the same information you’d want if you were buying a company.

Due Diligence paperwork may include financial information, as well as info about licenses, property or equipment leases, and any pending/ongoing litigation.

• Financial Records: Buyers will thoroughly examine your business’s financial statements, tax returns, and related documents for the past several years to assess profitability and stability. Ensure all your records are comprehensive, transparent, and well-organized to expedite this process.
• Legal and Contractual Documents: This includes a review of all contracts, agreements, leases, and legal paperwork your business holds. Buyers check these documents for any obligations, liabilities, potential legal issues, or terms that might affect the business’s value or operations.
• Operational Overview: Potential buyers will delve into your company’s operational processes, supplier relationships, inventory management, and customer base analysis. They’re looking to understand how your business functions daily and what potential operational risks may exist.
• Market Position and Competition Analysis: Buyers are interested in understanding the market position of your business, including a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats), competitive landscape, and any market risks or advantages your business might have.
• Employee and Management Information: Expect buyers to request details about employee roles, salaries, benefits, and overall company structure. They will assess the strengths of the management team and employee relationships, looking for any potential human resource issues that could affect business continuity.

8. Negotiate an Agreement and Close the Deal

In price negotiations, you may negotiate the price of pieces of the business. This can include inventory and equipment. It can also include depreciable property.

9. Hire a Lawyer and Finalize the Contract

Even if you list and market the business on your own, you’ll need a lawyer to close the sales process. And not just any lawyer. You’ll need a lawyer or a law firm that specializes in business sales.

10. Receive Payment Upfront

The percentage of the down payment requirement may vary, depending on the bank. Upfront payment is a non-negotiable element of the sale. Potential buyers who don’t have upfront money are just that – potential buyers. Potential buyers may not yet be ready to become actual buyers!

11. Enjoy Your Achievements!

You’ve done it. A business sale can be extremely stressful. Take time to decompress.

How to Sell Your Business Summary

6 Mistakes to Avoid When Selling Your Business

Of course, people make lots of mistakes when selling a business too. So we’ve put together the most common mistakes to help you avoid them.

1. Not Planning Ahead

Don’t forget to plan your exit strategy.

2. Waiting too Long to Sell

Making a profit? Sell while you’re on a roll.

3. Misrepresenting Your Business

Don’t mess with financials especially tax returns. Unless you enjoy spending time in litigation.

4. Not Keeping Business Confidentiality

Nearly all sales of businesses include a nondisclosure or confidentiality agreement. This is not paperwork that is done when the business sells. It must be done before you provide any financial information about your business.

5. Finding the Wrong Buyer

Sellers must guard against that business buyer that might even look good on paper. Thoroughly investigate the financials of a prospective buyer. The deal has to work both ways.

6. Trying to Sell Your Business Alone

This is a tough row to hoe. The myriad of paperwork that’s required is daunting for the average business sale. This is where brokers are worth every penny. Brokers that have completed many deals will streamline the process. Brokers have contacts, including lenders.

How to Sell a Business Quickly

If your main goal is a fast sale, keep in mind you may not get the highest price tag.

But here’s how to get it done:

1. Have all your financials in order.
2. Create a packet which includes financials and the executive summary.
3. Prescreen buyers before sending information about financials and/or the packet.
4. Sell for a lower price to an employee or family member.
5. Keep interest high with aggressive marketing.

Selling a Business with a Commercial Lease

An owner may have a commercial lease which complicates selling a small business. The owner may be able to transfer “interest” in the lease to buyers. But the lease can only be transferred to buyers if that’s allowed in the original lease agreement.

Either way, notify your landlord.

How much does it cost to sell your business?

The average cost of selling a business, if you use a broker, is the broker’s 15% commission which is based on the sale price.

There will also be legal fees.

How do I legally sell my business?

Here’s a sample of legal documents that make up a sale, in addition to the actual purchase and sale agreement:

1. Bill of Sale – Needed to transfer assets such as inventory or equipment to the buyer.
2. Non-compete agreement – if necessary.
3. Non-disclosure/confidentiality agreement – to be inked before sending financial information and business info (customer list, contracts, etc.).
4. All Rights Reserved – All rights reserved is a copyright formality indicating that the copyright holder reserves all the rights provided by copyright law.

How long does it take to sell your business?

Some businesses sell within six months, especially a sole proprietorship. Most of the time the sale of a business takes closer to two years.

Expect your sale to take two years, and remain firm on the price tag.

How do you sell a struggling business?

Yikes. You’re struggling and you want to sell a business fast. But what if it’s not currently a success? Here are some tips:

1. As previously stated, have financial paperwork in order.
2. Keep the doors open. Nothing says “Make a low offer” like a “closed” sign.
3. Seek professional advice. You can start with SCORE, Service Corps of Retired Executives website, where the advice is free.
4. Make other plans. How should the business take shape if you can’t sell it? Is there anything you can do to make it a success?
5. Use a broker, especially one who understands the metrics of your business type.

What is the best way to sell your business?

To sum up:

1. Follow accounting standards and have key data organized.
2. Work to develop an executive summary of the business.
3. Have an exit plan.
4. Decide whether to go it alone or use a broker.
5. Have a marketing plan that creates interest.
6. Use a business valuation calculator.

Image: Depositphotos

This article, "How to Sell a Business" was first published on Small Business Trends