1. Overview 

Finding possible buyers and negotiating a price are two essential components of selling a company. In order to be clear about the value you may anticipate to achieve and the best ways to handle the sale, it is imperative that you create your own estimate of value early on. 
This tutorial outlines the main variables influencing your company's worth as well as the many methods for determining it. It also describes where to look for and how to approach potential customers.

2. Factors affecting the value of your business 

The worth of your company may be impacted by a number of important things. 
Finances: 
• Past, present, and anticipated cash flow; 
• Efficacious cost management 
• Immediate need for capital expenditure 
outside variables 
• How comparable firms are valued; 
• How many prospective buyers are interested in the company; 
• The status of the economy, interest rates, and demand in your industry; 
• The number of similar businesses in your sector that are on the market; 
Non-tangibles 
• Intellectual property, including patents, and goodwill The quality and profitability of your client connections; the possibility for expansion of your company; and any economies of scale that a new owner may take advantage of 
Liabilities and assets: 
• The worth of assets, including real estate, machinery, debts, and inventory How much of your order book is filled Debt load and other current obligations 
Individuals 
• The track record of performance of the management team; 
• The degree to which the firm depends on your abilities; and • The likelihood of your continued engagement 
• Key personnel's dedication and experience 
You may take action to increase the value of your company even if some of these things are beyond your control and may impact when you sell. Planning must begin far in advance. You may want to include an exit strategy in your first company plan. 
Keep in mind that whatever appraisal you and your advisors determine is probably going to be personal. Entrepreneurs often overvalue their companies. Your company's worth is only as much as a buyer is willing to pay. 

3. Typical techniques for company valuation 

Businesses may be valued in a variety of ways. The most popular methods of valuation are multiples of future profits and capitalization of future cash flows. There are many widely used techniques for valuation: 
• Companies that have a track record of steady profitability are often valued at more than their earnings. To estimate 'normalized' earnings, profits are adjusted for any anomalous or one-time factors. Generally speaking, smaller enterprises are valued at a lower multiple than comparable bigger ones. 
• Similar methods, but based on cash flow, may be used to appraise established, cash-generating firms. Discounted cash flow is the result of estimating and discounting future cash flows. Short-term cash flow is more valuable than long-term cash flow. 
•Businesses that are solid and have substantial physical assets, like manufacturing or real estate, may benefit from an asset appraisal. The "net book value," or the value of the assets reported in the accounts, is where you start. Then, these numbers are adjusted to account for things like changes in the asset or debt values. 
• One possible foundation for value is the price of starting a firm that is comparable to yours. Expenses might be related to producing items, hiring workers, purchasing equipment, drawing in clients, and so on. This 'entry cost' might be estimated to provide a baseline for the worth of your company. 
• Certain sectors have set standards for company valuation, such as the number of branches an estate firm has. 
A prospective buyer could use many strategies to get a variety of valuations for your company. But ultimately, there will be room for discussion over any price. 

4. Draft a memorandum on sales. 

The first marketing document you use to generate interest in your company is the sales memorandum. This is one of the most important tasks in selling your firm, and it is assisted by your business broker or corporate finance consultant, if you have one. 
Prospective buyers may learn the essentials of the business and the prospective contents of the transaction via the sales memorandum. Details such as the preferred sale structure—such as assets and goodwill or share transfer—the industry your company operates in and the length of time you've been in business, key financial figures like profit, cash flow, asset value, and total debt—similar financial figures from prior years and how they've changed, the number of employees and their job titles, and the location of the premises should all be included. 
Of course, the sales note should be honest and provide the company with the best possible impression. You should draw attention to any unique qualities of your company as well as any room for expansion or increased revenue. The aim is to pique the curiosity of prospective buyers and compel them to inquire more. 
Focus on the presentation. Present financial data in an aesthetically pleasing manner, such as using charts and tables, and use clear, succinct language. 
You shouldn't put private information in the paper, including client names or your price schedule. Later on in the marketing process, once you've had a chance to see how serious potential buyers are, you may provide more specific details. 

5. Identify prospective purchasers

Select the people you believe would be willing to pay a fair price for your company because: 
• You are the market leader in a specific segment, so a rival may want to sell their products to you; 
• You may have a product that closes a gap in their line of products; 
• They may be able to sell their line of products through your distribution channels; 

• They may be able to take advantage of economies of scale in areas like purchasing, production, and sales; 
• They may want access to your personnel 
Make sure you include both private people and investment organizations in your list of potential candidates for your firm. You also want to confirm that any prospective buyer is sincere. Most importantly, you need to be certain that they can afford to purchase your company. Your advisors ought to be able to assist you in determining this. 

6. Potential buyers' research sources 

Several important sources are likely to provide potential buyers for your company: 
• Suppliers, clients, or rivals 
• You could find inspiration in trade periodicals, company directories, and the financial press. 
• A buyout of employees 
• The management group you already have may be interested, but you'll need to make sure they can get the funding. You should be able to find potential purchasers in the UK and overseas with the assistance of your company broker or corporate finance consultant. They will have access to a vast network of connections and databases including potential buyers. They may also assist you in determining if purchasers can afford a purchase. 
•It could be worthwhile to advertise to prospective customers for certain kinds of businesses. For instance, you may utilize internet business for sale listings or advertise in magazines like Daltons Weekly to locate buyers for a store, motel, restaurant, or bar. 
A shortlist of possible buyers should be created by you and your advisor to contact. Having two lists, one for your preferred potential customers that you will contact first and another for fallback purposes, might be a smart idea. 
You mustn't devote all of your attention to just one potential customer. The buyer may make all the decisions if they are aware that they are the only person with an interest. 

7. Make contact with potential customers 

To protect their privacy, the majority of sellers prefer to speak with prospective purchasers via their advisors. Your staff and customers can get irate if they find out that the company is for sale. It's also possible for rivals to attempt to use the transaction to learn your trade secrets. 
Utilizing your advisor also frees you up to focus on managing the company. Keep in mind that it might take a while to get in touch with purchasers and provide them with further information. 
To gauge interest, the advisor first writes to prospective participants. The consultant delivers a sales memorandum or summary brief to a selection of prospective purchasers after determining their level of interest. The advisor determines their level of seriousness before providing them with more information. Early on, your counsel could attempt to conceal your identity. 
Typically, a non-disclosure agreement—also known as a confidentiality undertaking—is requested from potential purchasers. They promise not to misuse or divulge any information they learn about your company. 
Buyers often prefer to meet to ask more inquiries if they show a genuine interest. Before they meet with you, your advisor could sometimes ask them to make an initial or suggestive offer. 
Following this, you start taking part in increasingly intricate talks. 
Finish selling your company by reading our tutorials on selling a business: comprehending contracts.