14 Karats of Knowledge for Preparing Your Business for Sale
Selling your business is no stroll in the park. You’ll need the right motivation, a ready mindset, and something attractive to sell.
So, a key factor to a successful sale is preparation. The more effort you spend preparing your company for an eventual sale, and understanding the factors that make a business sellable, the more attractive your business will be to prospective buyers.
Keep in mind that just because your business is making a profit, doesn’t necessarily mean it’s attractive.
Ready up with these 14 karats of knowledge to help you get a golden deal:
1. Know the signs that it is a good time to sell YOUR business.
Usually the best time to sell is when sales and profits have been increasing each year and signs indicate the trend will continue. Current market conditions also play a role in prices paid for good businesses. Since “today’s market offers the best environment for small business sales that we’ve seen in years,” selling a little early in order to ride the rails of a good market may be a better risk than waiting for the next train that may never come. Lance Tullius, Managing Partner of Tullius Partners, spells out the all-too-familiar scenario of waiting too long in his article, “Sell Too Early.”
2. Know why you want to sell.
A committed resolve to sell is essential. One of the first questions buyers ask is, “What is really motivating the owner to sell?” They ask this question to measure, in their minds, the probability that there may be skeletons in the closet.
3. Know the company’s best features and its blemishes.
Yes, highlighting the awesomeness of your business should take center stage. But no company is perfect. Be ready to disclose the warts too. Buyers do not like surprises, nor do business brokers or other members of the professional team involved in the sale process. Major problems uncovered late impugn your integrity and diminish the probability of a sale. The more issues brought to the table and worked out in advance, the better chance of a smooth closing.
4. Know what you will do after your business is sold.
This should be part of what is motivating you to sell. If you don’t have a plan in mind, you might find yourself getting cold feet or feeling a little off balance when that first offer comes along. Be sure you won’t balk when momentum starts picking up.
5. Know the value of your business.
Understand what drives business value and what makes it attractive to prospective buyers. Get a business valuation by a reputable firm to understand what to expect in the current marketplace. This is an initial step in determining if the sale would meet your objectives. You must also understand the tax implications of the business sale — it’s not what you sell your business for that counts, it’s how much you keep.
6. Know that your asking price is based on reality….
…a reality that buyers and their lenders can believe in. The buyer will look at return on investment and their lenders will require that the deal make sense in terms of debt repayment. Over-priced businesses get stale and old in the marketplace and do not get sold.
7. Know that you are current on all taxes.
This includes sales taxes, unemployment taxes, payroll taxes, state income taxes and federal income taxes. Delinquencies in taxes of any kind can stop a deal in its tracks.
8. Know that operational details are not just in your head .
Buyers want processes and systems for ease in taking over the business. These include organized records, files, contracts, policies, employee records, training manuals, how-to manuals, business processes, systems and controls that are reliable and organized to keep things going after you’re gone.
9. Know that your business can operate without you.
The value of a business is built upon the sustainability of operations without its leader. Key employees and staff who run daily operations are the key to its future. Relationships with customers or suppliers should not be dependent on the owner. Most businesses are unsellable if the owner “IS” business.
10. Know who you are, who you are like, and who your competition is.
Buyers will survey your company’s landscape to scope its position in the market. You should be able to provide intel about your competitive environment.
11. Know your numbers.
Be able to provide accurate financial statements and tax returns and produce key financial reports and performance metrics.
12. Know that your team is ready.
Be sure that your trusted advisors will be able to assist you in the transaction. A meeting with your attorney and accountant, for instance, will play a role in reviewing and gathering all necessary documents for your business broker before going to market. Your team of advisors needs time for preparation in order to effectively support you in the transaction.
13. Know that you can provide the roadmap to even greener pastures.
Buyers are interested in potential—they buy the future, not the past. A growth plan and marketing plan will help a prospective buyer understand where opportunities exist and what could be done to take the business to the next level.
14. Know what’s most important to you in the grand bargain.
Be prepared for the pull and tug of negotiation. Don’t get bogged down in minor details. Stay focused on your key issues. Understand your absolutes vs. wishes. Such preparedness will go a long way while negotiating the different scenarios on price and terms. How the deal is structured to meet the needs of buyer and seller can make or break a transaction.