4 Simple Ways to Prepare Your Company for Sale
The idea of selling your business can feel exhilarating and even spark a sense of anticipated freedom! Maybe you’re looking forward to a new business venture, a less stressful life, spending more time with family or just retirement in general. No matter the reason, we need to make sure you achieve the highest price and the best “deal” that you can possibly gain.
The process of selling your company should ideally begin long before you plan to sell. Start by keeping organized financial records, working with a CPA if necessary. Be sure to repair and update equipment as needed, and maintain up-to-date contracts and licenses. Also, remain focused on hiring talented employees, and partner with an experienced business broker to assist you with the sale.
Selling a business can seem overwhelming, and many business owners often shoot themselves in the foot before they even start. They wait until they need to sell before considering what a buyer may be looking for, and this could cost both time and money in the long run.
Fortunately, there are steps you can take now that will not only help with the sale of your business in the future, but will also allow your business to grow in the meantime. Whether you plan to sell in the next year, or many years from now, the following steps are crucial in preparing your company for sale.
Steps to Prepare your Company for Sale
Organize your Financials
While many factors go into the sale of a business, prospective buyers usually have one goal in mind when considering a business, and that is to make money. Therefore, organized financial records are one of the first things a buyer will ask to review. It is very common for potential buyers to request at least three years of financial documents, including profit and loss statements and tax returns. You should also be prepared to provide industry standards and future projections. This will allow the buyer to see the potential for future success of the company.
In the years leading up to the sale of your business, there are other financial decisions you have to consider. Complete your taxes on time, and avoid requesting extensions. You will also want to remove all personal expenses that are not easily identifiable from your business. While you may end up with a higher tax bill, you’ll certainly end up with a higher purchase price as well. Buyers want to purchase a well-managed business, and they’ll often pay a premium to do so. If you aren’t already working with a CPA, it may be a good time to start. Financial statements provided by a CPA give potential buyers confidence and a clear and concise look at how the business is doing from a financial standpoint.
Clean Up Shop
Before you advertise your business for sale, clean up shop, both literally and figuratively. When prospective buyers consider purchasing your business, they want to envision what the future of the business will be, not a laundry list of items that need to be taken care of on the first day. Start by tying up all loose ends. Repair or update broken equipment, and be sure that work vehicles are clean and in working order. Tidy up your workshop and office space as well. A fresh coat of paint and new furniture also go a long way to impress prospective buyers. When the business is clean and organized, it gives buyers the impression that it is well-managed.
Next, focus on those things that won’t be evident when a buyer walks through the door, but will certainly come up during the due diligence. Some owners wait to handle these issues when they are brought up by the buyer, but this may impact what the buyer is willing to pay. It may also raise red flags about what isn’t being disclosed. Be sure that all contracts with customers and vendors are signed and up to date. Have recent copies of any licenses and certifications on hand, as well. Buyers prefer to have contracts in place with customers and vendors to help make the business transition smoother. In the end, it is better to have these issues taken care of before a buyer inquires about them, as they could become a negotiating factor in the overall sales price of the business.
Focus on Highly Qualified Employees
As you plan for the sale of your business, don’t lose sight of hiring, training, and maintaining the best employees. While a handful of potential buyers may want to take on the role of hiring a new team of employees from the beginning, most (99.9%) will place a much higher value on having highly qualified, trained employees who know the business already in place. Before you place your business for sale, fill all vacant positions with experienced staff. If your business is family run, and your family members plan to leave when you do, now may be the time to begin transitioning their positions to staff that intend to stay on long after ownership changes hands.
Business owners are often so deeply tied to their business that they get involved in every detail of the business, from day-to-day tasks to long term planning. It’s likely a large part of the reason they’ve been able to grow their successful company. To prospective buyers, however, an owner who is involved in every aspect of the business could be seen as a red flag. Buyers want to know that the business will still prosper after the sale. As you prepare to sell the company, consider the process of removing yourself from key roles. If you have been actively involved in developing customer relationships, you’ll want to begin transferring those important relationships to a key employee as well. These steps will allow buyers to envision the business once you’re no longer there.
Partner With an Experienced Business Broker
As a successful business owner, you understand the value of working with an experienced professional, and selling a business should be no different. One of the biggest concerns owners have when preparing a business for sale is determining the right valuation for the company, and understandably so. Price the business too high, and you could turn off prospective buyers, but price it too low, and you could be leaving potential profit on the table. To ensure that you have the right valuation for your business, one that both you and your buyer feel is fair, it is best to work with an experienced business broker.
In addition to determining the right value for your business, the right business broker will work in your best interest throughout the process. They will not only pull from a vast network of potential buyers, but will vet them as well. Before you ever meet with a buyer, your broker will verify funding, do a background check, and be sure their experiences match the job requirements. The business broker will be there to ensure the process runs smoothly, and that the deal closes. This time intensive process is done by your business broker, all while you continue to focus on what you do best—growing your business.
When looking for a business broker, there are always good firms and bad firms. One of the most important things to consider is references and reviews. A high-quality business broker will have numerous references available immediately to give a good recommendation, so be sure to ask for a minimum of three references. Also take a look online at Google and Yelp reviews to help validate your decision. In addition to these, pay attention to any upfront fees. Some brokers charge upfront fees, while others don’t. Fees vary from state to state, but make sure that any upfront fees are applied to the broker’s final commission.
Before you ever meet with a buyer, your broker will verify funding, do a background check, and be sure their experiences match the job requirements.
Preparing Your Company for Sale
Ideally, the process to prepare your company for sale should begin long before you plan to sell your company. Maintaining organized financial documents from the start will benefit you now, as you grow your business, and your buyer later, as they consider the purchase of your business. Don’t forget to repair and update your equipment and vehicles, and stay up-to-date on licensing and contracts, as well. Whether you plan to sell now, or many years down the road, don’t lose sight of hiring and training highly qualified employees. In addition, scale back your roles as owner and transition important relationships to a key employee or manager. Finally, to ensure a smooth sales process and the best valuation for your business, work with an experienced business broker. These steps allow you to continue growing your business as you move toward a sale.
Scot Cockroft is a serial entrepreneur and business broker who helps business owners realize their full potential in selling their business. He is passionate about the process, having created and sold four of his own businesses to date, and helped hundreds of other businesses do the same. As President of Sigma Mergers & Acquisitions LLC, Scot is in the trenches day-to-day and is always looking for the next business to buy, grow, and of course sell!