The best kind of deal is where you receive the entire purchase price for your business, in cash, at the time of the closing. With this kind of deal, you could walk away from the business, free and clear. Many owners would gladly reduce their price significantly if the buyer would pay all cash.

One important question that a buyer is likely to have is, are you willing to finance at least part of the deal? This is a very fair question — during periods of tight bank credit like we've been experiencing since 2008, seller financing is common in many, many business sales. Even as the credit crunch eases, sellers are likely to provide at least some of the financing in a majority of business sales.

Other than the purchase price itself, the terms relating to payment are the most important items that must be determined. Indeed, payment terms can have a big impact on the price you'll accept for your business, as well as on the price the buyer is able and willing to pay. It is essential that payment terms are generally agreed upon before the letter of intent is signed.

If your business is incorporated, you have a very important decision to make: will you sell the assets of the business, or the stock? (Unincorporated businesses and partnerships don't have this option.) This is one of the most important terms in a sale of an incorporated business. In most cases, selling stock is better for you, but selling assets is better for the buyer. If you agree to the buyer's demands for an asset sale, you should insist on a higher price because of the significantly higher taxes and liability risks you'll face.

One issue you should examine closely, as you make your plans to sell your business, is the transferability of your key contracts.

Once you've decided on the appropriate value for your business, the next step is to find a buyer who can purchase at that price, and, more to the point, who wants to buy your company.

Although it may seem obvious, you should give some thought to exactly which of your assets will be sold with the company. You may have already removed unproductive or nonessential assets from the business in the course of getting it ready for sale. If not, consider doing so now. If you have assets that aren't needed to run the business, the buyer isn't likely to pay extra for them — you may be better off retaining these assets and selling them yourself.

Potential third-party buyers for your company can come from anywhere — your customers, suppliers, your community or industry competition. Buyers who are unrelated to you and who may be unearthed by your business broker can usually be divided into two groups: financial buyers and strategic buyers. A third group of potential buyers is composed of people you already know well: your family, managers, or employees. Finally, if your business has grown quite large and/or you're in an industry that's red-hot at the moment, you may be able to sell out to the general public via an Initial Public Offering (IPO), although an IPO is generally considered a tool to raise capital for on-going business development.

Hopefully, you've been thinking a lot about your priorities, about what you really want to achieve by selling your business. At this point we'll go into some more detail about the various terms you might consider as part of the deal.

So, now that you have a sense of who your potential buyers might be, how do you go about reaching them? Assuming, of course, that you're not going to be selling to people you've already identified, like your children or your key employees.

Our discussion of business valuation methods assumes that you're attempting to put a value on the entire business in anticipation of sale. But what if you want to sell off just a part of the business? Or, what if you want to give away part, as part of your long-term succession plan?

Most small companies are valued using one or more of the following methods, which take into account the company's historical earning power:

Theoretically, anyone purchasing a small business is interested only in the business's future. Therefore, a valuation based on the company's expected earnings, discounted back to arrive at their net present value (NPV), should come the closest to answering the buyer's questions about how much the business is really worth today.

Several business valuation methods are based primarily on the market price for similar businesses at a given point in time. Business brokers and mergers and acquisition specialists are more likely to favor these methods, at least as benchmarks, since they have access to data about recent sales and merger activity. Ideally, market-based methods should be used in conjunction with an examination of earnings (historical or projected) so that they can serve as a "reality check."

Assets and earnings valuation, known as the excess earnings method, takes both assets and historical earnings into consideration in arriving at the value of the business. This is the method prescribed by the IRS for estate and gift tax situations when there's no other more appropriate method. It can also be used in appraising a business that's being put up for sale, although the IRS does not prescribe it for this situation. Since the IRS has sanctioned this method for at least some purposes, your appraiser may want to use it also, particularly if you're concerned about IRS scrutiny of your tax returns reporting the sale. You may sometimes see this method referred to as ARM 34, which is what the IRS calls it.

At a minimum, your company should be valued at the sum of the value of its easily salable parts. Two commonly used business valuation methods look primarily at the value of your hard assets.

Regardless of the state of the economy and of your industry, there are any number of things that you can do to improve your business's appeal to buyers before the sale. The main problem is that a lot of these things take time. If you need to sell right away, you're not going to be able to add much value. Consequently, it's possible that a lot of the potential value of the business will go down the drain.

One thing that virtually all small business owners do to "dress up" their business before a sale is to recast historical financial statements for the last three to five years, and draw up projected statements that reflect how the business would look with a new owner.

It's important to recognize that the things you love about your business are not necessarily the same things that a buyer will love. You may appreciate a lot of the intangible benefits you get from being your own boss, from your status in the community, from knowing that you provide a good product to your customers and a good working environment to your employees. Possibly you value some of your perks even higher than the salary you take out of the business.

So, you've examined your company's historical financial statements, thought carefully about your prospects for future growth, and perhaps had your accountant recast your statements to reflect how new ownership would affect your company's earnings and cash flow. You've also considered the market value of any real estate, equipment, inventory, and other hard assets that would be transferred in the sale, as well as the intangible aspects that make your business appealing.

The value of a typical small business should be greater than the total values of its hard assets. For a buyer, the key is that an ongoing business has everything necessary — equipment, location, and inventory if applicable, not to mention experienced employees, suppliers, business processes, and a customer list — all in place, in the right amounts for successful operation of the business.

If you co-own your business with partners or other shareholders, the law imposes certain duties on you to deal fairly with them.

If there's one overriding principle to observe, in the realm of dealing with potential buyers, it's that you must be truthful and complete in the information you share about your business. It's fine to be optimistic and present the positive side of things. For example, you may prepare a selling memorandum that highlights all the advantages your company has over the competition. However, you also need to be careful that your buyer knows as much as you do about any potential problems in your business. You don't have to dwell on the problems, and you should always present possible solutions when you discuss them, but disclose them you must.

In most cases where third-party financing will be needed to complete the sale of a business, it will be the buyer who selects the lender and negotiates for financing. We mention the banker as a member of "your" team only to emphasize that it's to your advantage to cooperate with lenders as much as possible. Thinking of the lender as a team member may help you to share the necessary information and work with the lender to get the deal closed.

The subject of ethics in business is one that gets little attention in the press — at least, until someone goes to jail for insider trading, or is investigated for price-fixing discussions with competitors. However, we think that you should pay attention to it, especially when it comes time to sell your business.