It’s important to start preparing your business for sale as early as possible. Business owners often think about selling during a downward trend though the best time to sell is when your business is in good shape. If you plan ahead, you’ll be ready when the time comes.
It’s essential to get expert advice from your attorney, accountant and broker. Talk to your attorney as they can protect any trade secrets by writing up a confidentiality agreement. This will help safeguard your intellectual property (IP).
Your accountant can help calculate your business’s goodwill, give advice to determine the optimal price to sell, and make sure that your financial records are in order. By providing accurate sales figures, you’ll reduce the element of risk for potential buyers.
Hiring a broker will assist to smooth negotiations with prospective buyers, can help keep your identity confidential so suppliers and customers don’t get concerned, and will allow you to focus on running your business while they look for buyers.
What kind of person would be interested in your business? Will you be able to find them locally or must market elsewhere?
A potential buyer needs correct and comprehensive information to make an informed decision on whether your business is suitable for them. You can help this process by understanding who your potential buyer is, and what they may want to know about your business.
They will value your business more highly if they are confident it will continue to grow and provide a healthy return on their investment. They will be comparing it against the competition and looking for compelling reasons why your business will be more profitable than the alternatives.
You will increase the value of your business if you can clearly demonstrate that your business has a strong competitive advantage.
Questions that buyers may ask include:
It’s likely that potential buyers will want to view at least three years of financial statements, including income statements and balance sheets. They’ll be buying into your business’s profitability, so you’ll need to identify any non-operating expenses like interest.
Documenting everything you do in the form of an operating manual will help a buyer see how the business operates. This should contain all the working guidelines, policies and procedures that are used to effectively run your business on a day-to-day basis.
For example:
Record as much about your business as you can – it means you can hand over a manual showing how your business works and all the success factors and trading tactics you’ve used to make money.
An operating manual increases the value of your business as it helps the business become more of a ‘turn-key’ operation where things are all ready to go. Buy the business, turn the key, and watch it kick into life.
You’ll increase the value of your business by making sure all the little things are fixed before a new owner looks at things in-depth.
For example, you should look at:
Like selling a home, the better the business is presented for buyers’ first impressions, the better your chance to get the best price. When you’re preparing your business for sale, it’s important to:
Getting the best price for your business means planning well in advance, even if the sale is years away. It’s also essential to spend time getting your business into top shape – even restructuring it, if necessary, to make it more attractive and the sale more tax-efficient. Lean on your advisors for advice to help you make a plan.
Potential buyers might feel locked into a direction they don’t want to take if you’ve invested in long-term projects. Cut back to short term spending to reduce the financial burden on whoever acquires your business. Be realistic when providing for bad debt, old stock and depreciation amounts.
Buyers prefer low risk with high reward when they consider investing in a small business. Ultimately, buyers will look for good cash flow and solid systems with the potential for further growth. They want to make money so get your financial position in excellent shape.