How to Sell your California Small Business Confidentially
Getting ready to sell your small business confidentially can be time-consuming, but it doesn’t always 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 make sure they complete the process quickly and efficiently while making the succession as smooth as possible for you.
But there are several essential steps to follow putting your California small business up for sale confidentially, and following these steps will make your efforts significantly easier, increase your chances of success and achieve your goal in a shorter time frame.
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 start by having an exit plan in place. There are three common
types of exit plans when selling your California privately held small business, and these are:
- 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 talking to a California-certified business broker about what exit plan is right 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 it is a family-run business.
Shifting Ownership Internally
This exit plan is ideal for small businesses that want to keep the business intact but haven’t elected 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 they will ask if any finance is available? That would be you. In addition, it is not only the price of the business the team is lacking to provide; the team may 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 of trying to sell the company to a managerial team is whether they can work as a team and be successful. 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, then the business will most likely suffer from some key employees choosing to leave therefore needing to be replaced.
Selling Your Company to an Investor or Strategic Buyer
There are several options open to people with a California small business for sale.
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 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 that will do a deep analysis of the financial statements to realize where they see opportunities to cut costs and typically add this business to a company or companies they have in the same industry.
Here is more about selling a small business from a strength position: https://www.rogersonbusinessservices.com/selling-a-business-from-a-position-of-strength/
On the other hand, suppose you choose and agree to the sale of 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 moves to the buyer and the decisions of the future direction of the business they choose to make.
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 putting your California small business sale is arranging for a business valuation. This not only shows potential buyers that you’ve undergone the necessary due diligence required to sell your small business privately or confidentially but also allows you to understand how a lender will see the small business if they are asked to provide finance to a buyer.
As with preparing an exit plan, there are many to consider 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, business broker, Andrew Rogerson can not only help you find the business valuation method best suited to your business but 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 to selling your business privately is ensuring all your paperwork is in order.
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 and representations and warrants, Disclosures, Closing date, finance, Consulting and Training, Covenant Not To Compete, and many other items, obviously including the purchase price.
Here is more about how to conduct 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 business. If a buyer breaches that 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. Make sure the CPA has experience with business transactions as this knowledge is critical. 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 them to purchase the business but it puts in writing important items to both buyer and seller and helps decide whether to keep moving forward 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 there are four predominant types of buyers:
- Buyers with no business plan or funding
- Experienced entrepreneurs
- Private Equity Groups or PEGs
If you’re considering selling your company quickly and efficiently, then be open to understanding what is important to each type of buyer and meet any criteria important to you.
Exiting Your Small Business Confidentially
Finally, with the buyer selected and documents signed, you must decide how you handle the transition. There’s no right way to do this, but it does involve careful consideration of questions such as what becomes of your employees and whether you’re prepared to offer owner finance 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.
Selling a business privately or confidentially involves a variety of moving parts. Rogerson Business Services, along with the right accountant and legal team, can guide you through the process, so 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, so the proper documentation is part of the successful sale of your company.
- 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, so there are no problems after the sale closes. If you are ready to sell your small business in California and you wondering how to get started, you can start with the seven steps tutorial guide that we set up for you. Get started today.