Preparing to sell your small business confidentially in California can be time-consuming, but it doesn’t have to be.
Properly planning how to sell a California small business with a business exit plan will help you confidently pass your business into the hands of someone else.
A great business broker can ensure that the process is completed quickly and efficiently, making the succession as smooth as possible for you.
However, there are several essential steps to follow to sell your California small business confidentially. By following these steps, you will make your efforts significantly easier, increase your chances of success, and achieve your goal in a shorter timeframe.
So, how do you sell your California small business confidentially or privately?
Prepare an Exit Plan
If you want to sell your small business confidentially, you must first have an exit plan in place. There are three common
Types of exit plans when selling your California privately held small business include:
- Transfer the California small business over to a successor, such as a family member
- Shifting ownership internally, for example, to a key employee
- Selling the business to an investor or strategic Buyer.
Each option has advantages and disadvantages. With that in mind, it’s worth consulting with a California-certified business broker to determine the right exit plan for you.
Transfer the Business Over to a Successor
The advantage of passing on your business to a successor is that it limits third-party involvement. As a small business owner, it allows you to stay involved with your California business if you’re interested.
However, while many California small businesses for sale find this option preferable to selling to a third party, it can lead to tensions, especially when the company is family-run.
Shifting Ownership Internally
This exit plan is ideal for small businesses that want to maintain the business’s continuity but haven’t appointed a specific successor.
The benefit here is that your California business can be sold to a managerial team or group of employees, drastically reducing the due diligence you would otherwise have to undertake.
However, an issue might arise if the team wants to take over the ownership of the California small business with limited or no capital, and who will they ask if any financing is available? That would be you. In addition, it is not only the business’s price that the team lacks to provide; the team may also need cash flow as working capital to cover the overhead for the first few months they take over the company.
Here is more about when you can start telling your employees about selling your small business: https://www.rogersonbusinessservices.com/when-and-how-to-tell-your-employees-your-business-is-for-sale/
Another controversial issue in trying to sell the company to a managerial team is whether they can work effectively as a team and achieve success. Running a small business is not for everyone; this is the reason there are employers and employees. If the small business for sale is unsuccessful, it will most likely suffer from key employees choosing to leave, thereby necessitating replacements.
Selling Your Company to an Investor or Strategic Buyer
There are several options available to people looking to purchase a California small business.
When you first put your California small business up for sale with business ads in different marketplaces, you can choose to:
- Sell to a Private Equity Group if your business is large enough
- Sell your small business to another competitor or a Strategic Buyer
- Sell your business to an individual who wants to own and operate their own business
A sale to a Private Equity Group is the sale of your business to an investor who will conduct a thorough analysis of the financial statements to identify areas for cost reduction and typically integrate this business into a company or companies they already have in the same industry.
Here is more about selling a small business from a strong position: https://www.rogersonbusinessservices.com/selling-a-business-from-a-position-of-strength/
On the other hand, suppose you choose to and agree to sell your California small business to another competitor. In that case, you sell the California small business as an Asset sale, and the ownership of your company transfers to the Buyer, who then makes the decisions regarding the future direction of the business.
Often, when it comes to selling a small business confidentially in California, this last exit plan secures the highest value for your business.
Get a Business Valuation for your California Small Business Before Selling Confidentially
Once you’ve settled on an exit plan, a critical next step before selling your California small business is arranging for a business valuation. This not only demonstrates to potential buyers that you’ve undergone the necessary due diligence required to sell your small business privately or confidentially, but also enables you to understand how a lender would assess the small business if they were asked to provide finance to a Buyer.
As with preparing an exit plan, several factors must be considered when undertaking a business valuation.
The ways of calculating the value of a business up for sale include:
- Market Capitalization
- Times Revenue Method
- Earnings Multiplier
- Discount Cash Flow Method
- Book Value
- Market method
All these methods have specific process requirements, and Rogerson Business Services, led by Andrew Rogerson, a business broker in California, can not only help you find the business valuation method best suited to your business but also guide you through the procedure.
Documents You Need to Exit Your Small Business
Once you’ve had a business valuation completed, see a sample. The next step in selling your business privately in California is to ensure that all your paperwork is in order.
Rogerson Business Services can explain and provide a due diligence checklist, ensuring that when you sell your California small business confidentially, the Buyer receives everything they need.
A critical document you’ll need is the purchase agreement, also called the Definitive Purchase Agreement.
The Definitive Purchase Agreement outlines the basic terms of the sale between the Buyer and Seller, including representations and warranties, Disclosures, Closing date, financing, Consulting and Training, Covenant Not To Compete, and many other items, obviously including the purchase price.
Here is more about how to conduct a buy-sell agreement. https://www.rogersonbusinessservices.com/understand-buy-sell-agreements/
As you do your due diligence and assemble the documentation to sell your California company privately, make sure you have any potential Buyer of your business complete a Non-Disclosure Agreement for the business sale NDA.
An NDA requires the Buyer to keep all matters confidential. A business sale confidentiality agreement will protect your confidentiality in a business transaction. If a Buyer breaches the confidential business sale, it can result in monetary penalties.
For this reason, it’s helpful to have not only a California-certified business broker guiding you through the processes but also an Accountant and an Attorney. Ensure the CPA has experience with business transactions, as this knowledge is crucial. Equally important, only hire an Attorney with business transaction experience.
Finally, if you’re selling your small business confidentially in California, it’s helpful to have a Buyer initially present a Letter of Intent. This letter does not commit the parties to purchase the company, but it puts in writing essential items for both the Buyer and Seller, and helps them decide whether to proceed with the negotiations.
How to Identify a Qualified Small Business Buyer When Selling Your Business Confidentially
As you get started with selling your California small business confidentially, you’ll come to recognize that there are four predominant types of buyers:
- Buyers with no business plan or funding
- Experienced entrepreneurs
- Investors
- Private Equity Groups or PEGs
If you’re considering selling your company quickly and efficiently, be open to understanding what is important to each type of Buyer and meeting any criteria that are important to you.
Exiting Your Small Business Confidentially
Finally, with the Buyer selected and documents signed, you must decide how you will handle the transition. There’s no right way to do this, but it does involve careful consideration of questions such as what will become of your employees and whether you’re prepared to offer owner financing for part of the sale.
Often, people find that once they’ve sold their company privately, they remain involved for part of the transition to establish continuity for the business and employees. This is another question Andrew Rogerson of Rogerson Business Services in Sacramento, Northern California, can help you make.
Final Thoughts
Selling a business privately or confidentially involves a range of complex factors. Rogerson Business Services, along with the right accountant and legal team, can guide you through the process to help you successfully sell your business.
As a summary, once you begin to investigate selling your California small business confidentially, make sure your research includes:
- An exit plan that meets what is important to you
- Business valuation
- How to sell your small business
- The right attorney ensures that the proper documentation is part of a successful company sale.
- The type of Buyer you are looking for
With the right assistance and documentation, you’ll have successfully sold your business privately in the shortest time possible, and more importantly, without any problems after the sale closes. If you’re ready to sell your small business in California and wondering how to get started, you can begin with our seven-step tutorial guide, specifically designed for you. Get started today.
Andrew Rogerson is a certified business broker based in Sacramento, California. Call Toll-Free at (844) 414-9700. If you prefer, email him at support@rogersonbusinessservices.com. Andrew services the whole state of California.
