I’ve been on all sides of the buying and selling a business equation. I’ve sold a business, attempted to buy a business — which didn’t work out due to the insurmountable gulf in valuation between the seller and me — and worked with a client on integrating assets from a newly purchased business. Below is a brief overview of what to consider when selling your business.
Before You Even Think of Selling Your Business
As a business owner, it’s important to have your ducks in a row. And to legitimately operate your business like, well, a business. Maybe you began your business as a hobby or a side-hustle. And you kinda winged it. That’s fine. But now you’re reading an article from a professional trade organization (because you are a business person!) and I’m giving you a wake-up call. Get your darn ducks in a row. It is never going to get easier or less complicated to whip your business into shape than it is now.
And while we’re talking about things you should do, it’s important to know whether you’re building a business or creating a job. Read this article: https://craftindustryalliance.org/building-business-creating-job/. Either option is fine, but you can sell a business. You can’t sell a job.
Below are some things you should do to run your business effectively, whether you’re selling it or not. If you’ve already gotten to the point of selling your business, then you have some serious hustling to do!
Document procedures and create a handbook for your business
It’s simply a best practice to document how you run your business and consolidate all of your important operating information in one place. It is completely impossible to transfer a business without having this information put together, so save yourself the angst, and get it all together in a leisurely fashion without a selling-your-business-deadline hanging over your head.
Here’s a great resource: https://craftindustryalliance.org/creating-employee-handbook-works-business/.
Some items you should consider documenting (not all may apply to you):
- Procedures for running the business, such as: how to print a shipping label, how to upload a new pattern to your website, etc.
- Procedures for making the product as well as all recipes and formulas (i.e., your St. Patrick’s Day frosting uses 1 drop Kelley Green + 2 drops Lime food coloring)
- A complete manual of policies for employees, as well as any records that are part of having employees, such as completed tax forms, signed contracts, etc.
- A list of passwords for all accounts related to the business
- A vendor list (i.e., where do you buy your necklace chains?)
- A list of contractors (i.e., who created your logo? who did the website redesign when you did an overhaul? who do you call during holiday shipping season to give a hand?)
- And anything else someone would need to know to do what you do.
If you think that a certain procedure is ‘just too special/difficult’ to be written down (or filmed in a tutorial video), then you should have alarm bells going off. What are you planning to sell if no one else can run the business/make product except for you?
Separate your personal and business accounts
It’s a good idea to keep your work and personal accounts separate from the start. This becomes 100% non-negotiable when you sell your business. When you transfer a business, it’s essential that you a) hand over everything the business needs to keep rolling, and b) you maintain your personal identity and ability to function in your normal life and not, say, lose access to your Amazon reading list.
Here are a few things you want to separate:
- Business and personal bank accounts. This includes actual accounts with a bank, credit cards, and digital monetary accounts, such as PayPal.
- Business and personal emails. It’s a good idea that if your mom needs to email you, she can contact you directly instead of at your business address. Dividing your business emails further into topic categories, such as customer service, wholesale, payments, is easier to do now than tease apart later on.
- Along with those emails, consider creating separate accounts for vendors which you use to purchase products as well as personal purchases, for example, a site like Spoonflower. Being able to hand over an entire account will be very helpful, as the purchase history would also serve as a product history for the business.
And just like getting your handbook information together, your business is only going to keep growing bigger and more complicated, so separating business and personal accounts isn’t going to get any easier than it is today.
As a person who had one muddled-up inbox for way too long, I’m a big believer in highly segmenting your inbox. GSuite allows you to set up email aliases with your domain name. For example, you use one inbox, but have alias email addresses such as firstname.lastname@example.org and email@example.com. Segmenting your emails early on allows you to easily hand accounts off to employees/contractors, or a new owner.
When You’re Ready to Sell
Finding a buyer & setting a price
This phase is the trickiest part of selling a business and will require that you take a good look at your expectations and stake in your business.
Take an honest look at what you’re interested in selling
You can’t even begin to talk about setting a price for your business until you’ve decided what it is, exactly, that you’re selling.
When considering selling your business, analyze which components are transferable to someone else. For example, your art business may have a solid foundation of reproducible pieces but may lose the one-of-a-kind work. Figure out what percentage of your business is transferrable (and I assume you have the procedures documented for those transferrables!).
Some items commonly included in a sale (but always up for negotiation):
- Logo, name, graphics, images
- Website and blog, and all associated content
- Contacts, such as mailing list subscribers
- Social media accounts
- Vendor lists and contractor lists
- Products, including formulas and recipes
- Patents and trademarks
- Royalties from existing arrangements
Because many craft-based businesses use/feature the owner’s name and image, it is important to consider to what degree you’re willing to give up the rights to your name. Are you okay with being prohibited from starting another business using your name? Are you open to remaining on as a consultant for continuity purposes?
Deciding what you are and are not willing to sell is crucial before moving onto the next step.
A common formula is that a business is worth 1.5-3 times the business’s annual profits, plus equipment and inventory. Even this simple formula becomes complicated when considering the value of a sole proprietorship — and here’s why: Consider a business that brings in $200,000 a year with $100,000 in expenses and an owner that works 50 hours a week. Is the annual profit of the business $100,000? Nope. Unless you like working for free.
Many sole proprietors conflate their earnings with the profit of the business — or, put differently, are working for free. In the example outlined above, what we really have is a $50,000 job and a business with a $50,000 profit. (And, here, circling back to Gwen’s article). If you’re on the other side of the fence — considering buying a business — keep in mind that you are probably going to hire someone else to do the previous owner’s job. Which makes the actual profit very important in the calculation.
Another item to consider is how much time is required to prepare the company for sale. Stephanie Woodson, who sold her website Des Moines Outdoor Fun says, “I offered my buyer two different options based on how much time each option would take me to compose. For example, the buyer is paying less because I’m not emailing over all the raw/unedited photos — she is just buying the watermarked ones that are already in the posts…. [which] saves me lots of time.”
There is no one-size-fits-all formula for selling your business, but accurate bookkeeping (you have that, right?) and analysis of transferable assets will help you arrive at a reasonable estimate.
Where to look for a buyer
I think that finding the right buyer at the right time is the single hardest part of selling your company. No doubt, a tiny bit of luck is involved, too. The forums on Craft Industry Alliance are a great place to look for a potential buyer. Also, consider chatting with fellow business owners at trade shows or networking events. Brokerage sites (such as https://www.quietlightbrokerage.com/ ) help match sellers and buyers, but many are reserved for large, high-earning sites and take a commission for their service. A site like https://flippa.com/sell accommodates all sizes of sites.
Having an existing relationship with the buyer can be incredibly valuable. Keep in mind that in many cases, you will be working together for a transition period of a few months, so being on the same page is important.
Beginning the Sale Process and Planning the Transfer
Once you’ve reached an agreement with a buyer and have prepared contracts, it’s a good idea to have multiple conversations and create a plan about how and on what timeline the transfer of the business will take place.
A (partial) checklist:
- Be sure that pricing information is explicitly spelled out, detailing exactly what’s included. Are there performance conditions? Payment plans? Inventory & equipment? Who will pay shipping/transfer costs?
- Go over handbook and dedicate time to hammering out any procedural issues.
- Make all expectations explicit about how the transfer will work. How long will it take? What is each person’s level of involvement? This could range from ‘here’s the stuff, it’s yours,’ to a long-overlap, such as working as partners for a period of months, especially if the brand is very personality-dependent.
- Create a timetable with to-do lists for both parties. Be sure this is agreed upon before you sign on the dotted line. Include a transfer period.
- Get your public relations strategy together. How/when will you tell customers, contractors, and vendors? Notification is important. For example, if a graphic design you’re using is part of the transfer, alerting the designer so that they are aware the new owner has appropriate rights to use the artwork.
If you have been sloppy in the prep work, this stage will become quite labor intensive. I admit it, I had been very mix-y about my email, using the same one for business and personal uses. I arranged the forwarding of personal-looking emails with my buyer, and 4 months later, I was still finding stray emails going to the wrong account.
Passwords and non-transferrables
Some things just don’t transfer. For example, LLCs can, but EINs don’t. Consult a licensed professional for this type of nitty-gritty information.
A number of services that you use to run a business aren’t designed to be transferred from one person to another, and it can be difficult to find out in advance which these are. In my experience, nearly anything dealing with money (a bank account, PayPal, Square, other payment gateways) can’t be transferred to another person. In this case, the new owner will need to set up new accounts and switch deposits to the new account on a certain day. Keeping detailed records through the transition period is crucial. For example, it may be necessary for the seller to send a check to the buyer to resolve for forgotten-direct-deposits and stray payments.
Some accounts (such as Google domains, ad accounts, Facebook) allow multiple people to become admins of an account. This is tremendously helpful. It is simple for the new owner to gain access, and the former owner to remove their own access once the transfer period is complete. For these types of accounts, no passwords need to be exchanged.
Keeping vigilant and responsive contact during this time is crucial. Many sites use 2-factor-authentication (where you enter your email and password and then a code is texted to the number on file) as an added layer of protection. In these set-ups, it is nearly impossible to change the phone numbers/information perfectly, and no doubt, the new owner will log in and the previous owner will receive a texted code that expires in 30 minutes. A simple phone call and understanding it’s a sticky process does wonders! (Read about how I lost an Instagram account, here: https://staceytrock.com/how-to-secure-your-social-media-accounts )
Once the transfer period is complete, it’s important that you take measures to make sure you are protected and your business is closed on your end. Read this post about closing your business: https://craftindustryalliance.org/close-business-without-anxiety-attack/.
There are likely a number of accounts for which you shared access or a password. For the accounts that you will retain, take the extra step to change your password to a new, secure one. Remember that many accounts are connected to your personal information. It can be tempting in the complicated throes of a transfer to hand over the password to a non-transferrable account (such as a PayPal account) as a way to avoid the complicated procedure of setting up new and closing old accounts. However, remember these types of accounts are connected to your EIN or social security number, so amounts earned are reported to the IRS as your income. It’s better to take the time to tie them off properly.
For accounts that you will lose access to, make sure to download all statements and invoices for tax purposes.
Selling your business can be a complicated and involved process, but careful planning can greatly ease the amount of work involved. Lastly, keep in mind that your business will change without you. It is not your baby, it’s a business. You need to be at peace with that. Let it go and enjoy your new path!
Stacey Trock helps small businesses in the craft industry put their best foot forward in the digital world. She specializes in developing a company’s branding, marketing + social media to build customer-loyalty, community-building and engagement. She writes, teaches and consults on a variety of small business marketing topics.