How to sell a business when you’re self-employed

A realistic business valuation is important for your expectations and planning, as well as setting a viable price likely to attract potential buyers. There are different ways to estimate the market value of your company, depending on your size, industry, and other factors.

Any business will only be worth what someone is willing to pay for it. But you can get a valuation or calculate one yourself based on annual turnover, adding up the value of existing assets, or working out the cost for someone to set up a similar venture from scratch.

Another option is to work out the value of company shares compared to earnings for a limited company (your price to earnings or P/E ratio), or to calculate your discounted cash flow, by estimating what future earnings and dividends will be worth, which works for more stable and predictable industries.

Enterprise value (EV) includes business equity and debt alongside a market valuation, and is often quoted for hot start-ups and big mergers or acquisitions, along with Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA).

It’s a good idea to find a few prospective buyers for your business, as your initial deal may fall through for various reasons. Due diligence on each of them could include references and credit checks to ensure they’re viable new owners with the funds available to complete the acquisition.

Be prepared for negotiations to take time and potentially some amount of compromise on behalf of both parties involved. If you’ve started and built up your own business, it can be difficult to let go emotionally, as well as from a practical standpoint.

Buyers will often want to negotiate your initial sales price, so it’s important to know the minimum amount you’ll accept before starting discussions. Ensure everything is recorded in writing, along with providing confidentiality or nondisclosure agreements to protect your business.

Try to focus on the priorities of your buyer, and what will be most valuable to them. If they already own a business, there may be advantages or synergies that will come from the acquisition.

There’s no binding commitment until the sale is completed, so don’t feel pressured by buyers or brokers into accepting a sale which you’re not happy with. Unless there’s an external reason to sell as quickly as possible, you can take the time to achieve a deal which is satisfactory for everyone involved.

The negotiations and documentation should also cover deadlines, and contingency plans if the sale isn’t completed for some reason, along with relocation or redundancy terms for any employees.