How to Sell a Sole Proprietor Business

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There are many reasons why a business owner would want to sell his sole proprietorship. Maybe the owner is having financial issues. Maybe the owner feels that the small business could be more useful if absorbed by a larger company. It could just be that the operation has run its course. Because the sole proprietorship is the same entity as the individual owner (as opposed to a corporation that is its own separate business entity), the sale and transfer of this type of company is fairly straightforward.

Things You'll Need

  • Sales agreement
  • Letter of Intent (from buyer)
  • Broker (optional)
  • Lawyer
  • Notary

Evaluate the value of your company. Many owners base their business valuation on the last three years of income, the potential income that the firm would make over ten years or so, and the value of any assets (such as equipment and inventory).

Place an ad announcing your business for sale in a trade publication related to your industry. Post the company for sale on Craigslist. Hire a consultant who specializes in connecting buyers with people who are selling their firms. Make it clear in the ad that this is a sole proprietorship, so the process of transferring owners will be fairly simple.

Put together a statement and sales proposal for your business. Clearly state the benefits and strengths of your business. Include financial statements from the past three to five years and state your asking price for the business. Offer special incentives for buyers that will make the acquisition of your sole proprietor company a sweeter deal.

Discuss terms and negotiate on the selling price of the business with interested buyers. Choose the buyer who offers you the best deal and has the highest likelihood of being able to pay you cash for your company. (The buyer might need to get a loan to purchase the business, use a credit card, or pay with his or her own personal funds.)

Write up a sales agreement that includes the agreed upon terms and ask the buyer to write what is called a letter of intent stating that they intend to purchase your sole proprietorship, assuming that their research of your business checks out. The letter of intent should also mention something about the buyer keeping your company information confidential.

Hold a "closing" meeting in front of a notary and lawyer where the ownership of the business is officially transferred over in exchange for a certified check for the agreed-upon amount.

Tips & Warnings

  • Don't sign any paperwork for the sale of your sole proprietor company until you have payment in hand at the closing.
  • Keep in mind that the income from the sale of a business is taxable.

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