Whether you’re looking for a new business venture, aiming to achieve a life-changing event, or planning to retire or transition into something new, you’ve decided to sell your business in California.
You’ve invested a significant amount of time, money, and effort in building your business, and now you’re seeking to maximize the value of your company and brand. Preparing your business for sale in California can be a crucial step in a smooth transition.
There are various steps involved in exiting your California company. It’s essential to follow precise processes, such as knowing the value of your business, having a clear understanding of a prospective Buyer’s suitability before arranging a meeting to discuss selling terms, and being aware of the company’s competitive position in the market, among other key considerations.
Successfully selling your California business requires organized planning—from organizing financial statements to making sure the business presents as positively as possible to prospective buyers. SEND FREE INQUIRY
As you approach the sale of your California small business, consider things not only from your perspective as the Seller, but also through the eyes of a Buyer. One of the fastest ways a growing company expands is through mergers and acquisitions, also known as M&A transactions. According to PitchBook, the vast majority of M&A transactions involve companies from the lower-middle market or those with a value of under $100 million. This fact alone makes your small company attractive to lower-middle-market companies looking to expand and grow their business in California.
See more about the types of M&A agreements that are structured.
The number of small businesses with annual revenues under $2 million for sale only continues to grow. This category of small businesses is also known as Main Street businesses, according to business intermediaries, such as certified business brokers in California, who assist in the valuation and sale of small businesses in transactions under $2 million.
The number of businesses bought and sold in 2024 grew a modest 5%. There were 9,546 closed transactions, representing an enterprise value of $7.59 billion—15% higher than 2023—indicating a greater concentration of higher-priced deals. BizBuySell
Business Exit Strategies
Over the past few years, there has been a particular attraction to smaller businesses, as they’re far easier to find and integrate.
There are also several exit business planning strategies when it comes to exiting your small company in California, but we’ve narrowed down the process to 10 steps:
- Find out how much your company is worth
- Ensure your financial statements are up to date and accurate with the assistance of your CPA or tax expert/consultant.
- Choose an intermediary or a Main Street Certified Business Broker.
- Create a management organizational summary of your company’s structure.
- List your business and market it for sale online across various marketplaces for selling a business.
- Receive and negotiate offers from prospective buyers.
- Make sure a qualified legal advisor prepares all legal documents
- Resolve and close the sale of your company.
- Move into transferring ownership.
- Ready to start your new life-changing phase and achieve your retirement goals or more into new ventures.
While there is still a lot that happens between each step, selling your small business in California largely depends on the type and category of the business.
So, if you’ve been considering, “how do I sell my business,” you’ve come to the right place. In this post, we’ll cover tips and helpful steps to maximize the value of your small business.
Business Exit Planning
Considering an exit plan is just as important as any step in the selling process. The route that you decide to take may determine business development decisions.
Many factors determine which business exit strategy framework a business owner chooses, such as how involved they (the business owner) want to keep in the business, whether they’re willing to see the business shift directions, or whether they want the new owners and their executive team runs the business in the same manner after their exit/transition phase.
Business exit planning also depends on the business’s gross revenue, the industry sector in which the company operates, and the state of the local, regional, state, and national economies. For example, a medical practice might benefit from selling to another practice in the same discipline.
On the other hand, an owner’s unusual exit strategy may simply be to maximize profits and then shut down the business. Yes, it’s unusual, but it does happen, thankfully not too often.
If the business has two or three partners, each party’s interests must be taken into consideration.
See 5 Ways to Exit Your Business.
Sell My Business for the Maximum Value
A small business valuation is a step-by-step process that determines the economic value of a company.
Start by Calculating the Company Value
There are many different ways in which a California small business is valued. Below, you can learn about several of these valuation approaches.
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Market Capitalization
When it comes to business valuation in general, many business owners view market capitalization as the most straightforward method for determining a company’s value. Market capitalization works by multiplying the total number of shares outstanding by the company’s share price.
In simple terms, market capitalization represents the value of a company as determined by its stock market. As we are dealing with a privately held small business, the Market Capitalization rate is not applicable.
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Earnings Multiplier
Another popular business valuation method is the earnings multiplier method. Compared to sales revenue, a business’s Net Income or profit serves as a more reliable indicator of its value, as it reflects what the owner retains after all expenses have been deducted. To help with this concept, would you pay more for a business with $1 million in gross revenue and costs $1.2 million to operate, or for a company with $1 million in gross revenue and costs $ 500,000 to operate?
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Times Revenue
The times’ revenue method uses one current revenue to determine the maximum value for a business. However, this specific method isn’t always reliable when it comes to business valuation, as illustrated above in the Earnings Multiplier method.
Valuing a business based on revenue isn’t the same thing as valuing a company based on profit, and an increase in revenue doesn’t always convert to profit growth.
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Discounted Cash Flow
The discounted cash flow, or DCF method of business valuation, bases its value on projected cash flows, adjusted to reflect the business’s ongoing market value. This method also takes inflation into account when calculating value.
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Tally the value of assets
This valuation method calculates the total value of all assets the business owns, including inventory and equipment. It then deducts any existing liabilities or debts. The value you get from this can serve as a starting point for finding the business’s worth.
However, a business is likely to be worth more than the sum of its assets; therefore, use this valuation method with caution.
Six Tips to Ready Your Business for Sale in California
Below are six steps to prepare for valuing and then selling or exiting your small business in California.
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Obtain a business valuation.
First, you should obtain a realistic valuation of your business from an unbiased source. Obtaining a professional financial appraisal will establish a foundation for measuring future offers. It also provides a general overview of what you can expect to receive from the sale of your small business.
Many professionals offer a valuation. Ensure you engage with a certified business appraiser for the best results. However, you can get a professional valuation from numerous sources. Contacting your nearest business broker will be a great starting point.
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Arrange your financial statements.
When a potential Buyer evaluates your business, they’ll typically require at least three years’ worth of financial statements, including tax returns.
The more organized and well-ordered your financial statements are, the more comfortable the Buyer and their team of advisors will be.
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Due Diligence: Net Income or Seller’s Discretionary Earnings
As part of a Buyer’s Due Diligence when purchasing a small business, they can request any documents they need to examine and ensure the accuracy of the financial statements.
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See your financial advisor.
You may also want to consult with your financial or tax advisor to help plan for your future finances and determine the necessary taxes to pay when you sell and exit your small business. Having a clear understanding of your tax situation may help point out any viable options regarding the deal structure.
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Arrange your legal paperwork.
Ensure that you review all associated permits, leases, licensing agreements, vendor and customer contracts, and any other relevant documents. When it’s time to meet with potential buyers, have the necessary documents to sell your business readily available and organized. This is especially true when buying a business in California, as there are specific license requirements and additional requirements to own and operate most companies in the state.
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Have an advisory team in place.
Begin conducting interviews with accountants and attorneys who are skilled in business transactions. You may also want to consider hiring a licensed business broker. Their role is to help accurately value the business and lead the transaction to source potential buyers, assisting you, as the business owner, in the selling process.
Why Choose Rogerson Business Services to Sell My Business in California
Selling your business is a life-changing event. That’s why it’s essential to plan for this event carefully.
If you’re listing a business for sale in California, you’ll want to find a reliable business brokerage firm. At Rogerson Business Services, a team of experienced professionals works to plan and execute business processes related to buying and selling in California.
You can also consult with Andrew Rogerson on how to increase your overall value.
List of Resources That You Might Find Helpful
- Selling your business
- Get started on a seven-step process of selling my business.
- Get a business valuation
- Get started on a seven-step process of valuing my business.
- Selling your medical practice
- Selling your manufacturing business
- Selling wholesale distribution business
- Best calculations: How to value a wholesale distribution business
- Selling a professional services company or firm
- Selling a construction company
- Selling a trucking company
- EBITDA multiples for a trucking company | best calculations
- How to value a logistics company | find a company worth
Final Take
While we’ve presented plenty of helpful tips on how to sell your small business in California, contacting a business broker near you or preparing a business exit strategy can be the difference between selling your small business and almost selling it. It is estimated that only 25% of privately held small businesses sell. Enhance your chances by engaging a professional business broker to assist you.
Mainstreet businesses refer to smaller companies considering the sale or exit of their business. Examples of a central street business exit planning include:
- The Seller is looking to retire or move into another venture.
- Several buyers may bid against each other, elevating your business’s value.
- You’re more likely to negotiate a higher price when you sell to a competitor as opposed to an outside party.
Additionally, using a leading street business broker can help give you a competitive edge in the market and eliminate or reduce friction points or roadblocks in the selling process.
Is your business worth $3 million and above? See how to exit/sell a business in the lower middle market category.
Considering an exit strategy for your small business, let’s get in touch, and we’ll walk you through the process by kick-starting a business valuation.
If you are considering valuing and selling your business or medical practice within the next six to twelve months, don’t hesitate to contact Andrew Rogerson, a certified business broker based in Sacramento, California. You can reach him toll-free at (844) 414-9700 or email him at support@rogersonbusinessservices.com. He serves the whole state of California.
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