Deciding to sell your business is probably not something you simply decided to do on a whim, but it’s also probably not something you’ve done a lot of planning for either.
There’s a distinct difference between taking your time deciding to sell your business, and taking the time to actually prepare your business for that sale.
There are some basic and fundamental aspects of your business that buyers are ultimately going to focus on, and those specific attributes can either make your business attractive, or expose problems that buyers just can’t overcome.
So here are five things you can do to get your business ready to sell:
Nothing impacts buyer confidence and business value more than the state of your financial records. So the most important thing you can do to prepare your business for sale is to “clean up” those books.
There are literally dozens of specific areas of your financials that should be examined during this process, but one particular aspect is by far the most critical – owner’s personal benefits.
Don’t worry – every business owner takes advantage of this perk to some extent. It might be as simple and reasonable as paying yourself a W-2 wage, or it might be something more questionable like paying for your kid’s new car and booking it as a company vehicle expense.
Whatever the level and type of personal benefit you are getting from your business, you need to make sure those expenses are identifiable and provable to a buyer. Your business’ value is going to be driven primarily by its profitability, and for the purposes of selling a business these personal benefits are considered part of that overall profitability.
The bottom line is that the more personal owner benefits that can be identified in your financials, the higher your adjusted profitability will be and the more you can ell your company for.
What do you think is the first thing buyers do when they are given the names of businesses for sale? Without question they Google them. So before buyers start digging into your online reputation, you should do some investigating on your own.
There are any number of sites out there where people can post a review about their experiences with any business. If you find something less-than-stellar about your company, see what you can do to remedy the review. Many sites give owners the ability to refute the claim, or at least post a response telling your side of the story.
If you can’t get your online profile cleaned up, then at least you’ll know what’s out there and can be prepared to address specific posts with buyers, if necessary. At the same time, you could also start a review campaign to try and incentivize customers who had good experiences with you to post those positive reviews.
Buyers care about cash flow, and nothing improves cash flow more quickly than managing your accounts receivable. You may be perfectly comfortable with the collection cycle you’re on, but if you tend to have A/R outstanding for long periods of time simply because you don’t aggressively pursue timely payment, you should consider straightening that out before you try to sell your business.
You’re A/R aging report is a critical piece of information buyers will want to review. If it demonstrates consistent and timely collection, it’s a huge positive for your business. However, if you have large amounts of revenue 60+ days outstanding, that raises a lot of questions and can cause buyers to lose confidence in the business’ ability to consistently cash flow.
As you prepare your business for sale, take the time to document the processes your business follows. How do you acquire customers? How do you train employees? How do you schedule jobs? How do you track inventory? There are literally dozens of unique processes you use to run your business, and you may not even realize it. Just keep in mind that everything it takes to run your business has to be learned by the buyer.
By defining these processes, you create a transferrable roadmap for the new owner to follow. Without this roadmap, buyers will possibly lack the confidence that your business can run without you. Documenting your processes eliminates much of that concern – if it can be defined that means it can be taught.
Every business, regardless of how simple or complicated the operation may be, has a “secret sauce” that makes it run effectively. When you sell your business, it’s that set of processes that a buyer is really buying. Sure, they’re buying assets and customers and your name, but without your processes those things have much less value.
Most business owners have an inflated opinion about their business’ value. While this is not necessarily a negative thing, it can create frustration and challenges if you are ready to move forward with a sale of your business, only to find out selling is not feasible given its true value.
So don’t wait until you’re ready to sell your business to find out what it’s worth – have a business valuation done on your company now. This information will only help you as you prepare your business for sale. In fact, getting your business value refreshed annually is not a terrible idea – if nothing else, you’ll at least know if the things you are doing in your business are working to make it more valuable.
In most cases, there are easily identifiable changes you can make to your business that will increase its value in a relatively short period of time. By getting the business valuation done early, you have the opportunity to implement changes that will make the business more valuable by the time you are ready to actually sell it.
If you’ve given any thought to selling you business now or in the future, these are five important steps you can take that will make that process much easier and more lucrative for you. Sigma Mergers & Acquisitions invites you to contact us to discuss any of these suggestions or if you have any additional questions.
We also would like to offer you a No-Cost, No-Obligation Business Valuation if you are interested in finding out what your business is worth.