Closing or Selling Your Business—Why, When, & How
After exploring the business lifecycle and how you can renew your small business, we want to make sure that you also understand the option to close or sell instead. The decision to close or sell your business is not one you will likely arrive at easily, and you’ll want to be sure that you’re critically examining your business for signs that you may want to move in that direction. According to Forbes, it is extremely common for businesses to fail or to realize when they should be pulling up stakes—by the time they do, they’re unable to sell or close without a major loss. We’re here to provide some insight as to why and when to close, how to approach the process, and offer some help along the way.
Why & When to Close or Sell Your Business
Did you know that, according to studies by the Exit Planning Institute (EPI), most business owners have not done any kind of business exit planning, even when most of their assets are wrapped up in the business itself? New small business owners should not necessarily be engaging in this type of planning, yet, but those moving through the growth and renewal/decline stages definitely need to start thinking about this. You may be wondering why not planning for this is such a big deal—it just means more work when you feel you are ready to close or sell, right? While that may be true, the larger consequence of failing to plan for this stage of the business lifecycle is that you may actually not be able to sell when you want to or close without taking a major loss!
Navigating How to Close or Sell
The most important thing experts recommend small business owners do when they decide to close or sell is to seek out assistance—accountants, financial planners, exit planners, and other industry specialists who can help navigate these processes.
Closing Your Business
The U.S. Small Business Administration (SBA) outlines six steps for efficiently closing your business, once you decide that is your preferred course of action. In summary, the SBA says you need to—
- Decide to close your business, with all relevant parties in agreement.
- File legal dissolution documents.
- Cancel any permits, registrations, or business names to protect yourself.
- Be sure to comply with employment and labor laws during the closure process.
- Be sure that all financial obligations have been resolved.
- Maintain business and tax records for 3 to 7 years post-closure.
Selling Your Business
The SBA plainly outlines how to close your business, but the options and process around selling a business are slightly more involved.
- Determine the valuation of your business before taking it to market. The SBA recommends doing a self-valuation using resources from the Appraisal Foundation. Be sure that your valuation includes property, equipment, and intangible assets like brand presence and future revenue projections. You’ll need to decide the approach you take—income, market, or asset—and a financial planner should be consulted during this step!
- Prepare a sales agreement. This is a legal requirement for selling your business and an attorney should be consulted for this part of the business sale process.
- Determine how ownership will be transferred during the sale. You’ll need to decide if an outright sale or a gradual sale is best for you and your buyer. An outright sale means immediate transfer of ownership, while a gradual sale is a more flexible plan when an outright sale is not affordable for the buyer.
Work with Growth Capital We know that deciding to close or sell your business can be stressful and may be your last resort as a small business owner. We’re here to walk through your exit plan and help determine if this really is the most advantageous option you have. If you’re not sure if you’re ready to close or sell just yet, we can work with you to find renewal options or funding options that can help you bring your business back to life. No matter the path you’re looking to take your small business, Growth Capital is here to help!