Determine what the business is worth. A general rule of thumb is to multiply between five and seven times the free cash flow of the business. This is complicated as other factors such as debt and the state of the economy will need to be considered before settling on an asking price. Business appraisers and merger-acquisitions specialists are experts at determining such asking prices. In some cases, these consultants spot practices that can improve cash flow so drastically that it'll make sense to keep the business.
Reveal just enough to make the company look good, especially in public or with competitors. Serious inquirers will be given more information, but if a competitor or a related business is interested, it is recommended to bring in professional help to manage those uncertain waters and prevent competitors from being able to use sensitive information or gain an edge to ruin the business.
Contact a business broker or merger and acquisitions specialist. Hire him to help find and acquire buyers, after he signs a confidentiality contract, as the broker will advertise under the brokerage name and not the small business name, thereby taking away the possibility of employees getting scared and leaving, suppliers getting nervous, and competition taking advantage. The broker will screen out the merely curious and those without proper cash and keep your name private until the interest is serious.
Write a selling memorandum that is essentially all the factual reasons a buyer should acquire the business. Look at your initial business plan and then list exactly what happened: the history, the goals achieved, the products, and the industry outlook. List the asking price as well. The key is to make it factual. Ask the broker to help create the memorandum and ensure that it meets any applicable state securities regulations.
List the problems of the business with possible solutions. As the owner, it is legally required to be upfront and honest; however, it is in your best interest to ask those interested to sign a confidentiality agreement before sharing these weaknesses.
Study the lending criteria for acquisition loans at national banks. Many small businesses don't fall within the guidelines, and as such, the owner should consider options that would include carrying the banknote, setting up installments with the buyer, etc. This adds risk to the seller since a buyer can mess up the company. Consult a lawyer in this case because there will be many things required of the buyer to make this work: filing the lien with the Secretary of State, a life insurance policy from the buyer listing the seller as a beneficiary to pay off the rest of the loan, a written statement that the buyer cannot sell any assets or part of the business until the loan is paid, and some personal collateral from the buyer besides the business itself, and a copy of the buyer's credit report and background check.
