If you’ve spent years, maybe even a lifetime, building a small business and are starting to think about retiring or cashing out, now may be a good time to sell. Here are the top 9 things to consider when beginning to prepare your business for sale.
1) Decide when it’s the right time to sell.
Is your geographical area or industry growing and experiencing a boom? That’s a great sign that it’s time to sell. Many people wait until their business is on the decline to sell. That’s the exact opposite of what you should do. You want to sell when you are at the top of your game. Some will say, ‘I’m making good money now. Why should I sell?’ That’s thinking like an average business owner, not an entrepreneur.
2) Prepare for the sale in advance.
If you actually take the time to prepare your business for a sale, you’ll more than likely attract more buyers, simply because most sellers don’t do the proper “prep work” to make the sales process easy and transparent. You’ll want to run your business for the next year or two with good financials; therefore, keep your paperwork up-to-date and document everything.
3) Enlist the help of Professionals.
Most owners recognize that selling a business is a complicated process, and they choose not to do it alone. A business broker will help you value your business, spend time marketing your business, screening buyers, ensuring confidentiality of the process and answering questions, so you can focus on making money and continuing to run your business. There are times when you might also want to enlist the help of an accountant to prepare financial paperwork. The buyer is typically going to have a good team to go over your business, and you should too.
4) Get your financials organized.
A diligent buyer is going to want 2-5 years worth of profit and loss statements, bank statements, tax returns, leases, supplier and vendor contracts, and customer data. Particularly with family ownership, companies sometimes run everything through the business, such as club dues and car allowances. Loading the business with tax write-offs can make you appear less profitable and cause a buyer to undervalue your business. Make sure the paperwork looks clean, organized, and clear. That way it is representative of a well-managed company.
5) Show value in the price.
Sellers can sometimes forget that the actual value of their business is the price that a buyer is willing to pay. Businesses are typically priced as a multiple of their owner benefit or seller’s discretionary earnings, which varies by industry and size. A savvy buyer is not going to care about cash flow only. That means presenting the buyer with a plan for how the business could grow and flourish over time is a good idea. Buyers understand good businesses, but you need to “show them the dream.” Take the opportunity to clearly articulate your growth story to buyers and help them understand the vision and goals you’ve set for the business.
6) Get your paperwork in order.
Generally, your customer database is the biggest asset you have. Knowing what you have to work with, or need to focus on, will give you confidence in putting together a solid informational and sales package for prospective buyers. Also included in this will be an overview and inventory of your assets, equipment and any physical components of your operations. Buyers will want and need access to this information as part of their due diligence, and the more information you can provide, the easier the sale process will be.
7) Transfer assets that won’t be sold.
Once you know you’re going to sell, begin transferring assets into your personal name if they will not be sold with the business. For example: cars, intellectual property, and real estate. That way they are off the expense column of the financial recast. This will show the buyer a clearer picture of the true owner benefit.
8) Work yourself out of the business.
If the business looks like it is dependent on you or a few key staff, a buyer may believe the potential for its growth will go away when you do. Therefore, take time to ensure it can run without you as its face. Outline each and every responsibility of all employees and include key performance indicators that clearly establish what is expected of each role. Make sure all of your operating procedures are documented.
9) Agree to a consulting role.
Sometimes you can seal the deal by agreeing to stay on in a consulting role for a period of a few weeks, up to six months or more. But first, you need to determine whether it’s really worth it to you. If you’re willing to stay on, it might reduce the risk to the buyer and increase the value of the company.
Selling your business can be a stressful and emotional time, but if you are prepared to sell, the process with be much smoother for all parties involved. Also, having the right professionals on your team will make all the difference.
Questions about selling your business? We have the answers. Contact us today!