How To Prepare Your Business For A Sale
If you are pondering the question of how to get your business ready for sale after reading our previous article on Signs that you are ready to exit your business, then you are in the right place. We are here to equip you with the knowledge to ensure you get the best deal. So, keep reading!
A business sale requires extensive preparation, so you should begin planning now as soon as possible. While you may not be thinking about an immediate sale, preparation is crucial for a successful sale down the road.
As a first step to preparing your business for a sale, you should put yourself in the shoes of a potential buyer. In other words, you need to work backward and figure out what you would want to see if you were considering buying your own business from a third-person perspective and list out your concerns.
In essence, you need to grow revenues, improve profit margins, and gain a competitive edge to prepare for an eventual sale. When the time comes to sell, your business will be more attractive to buyers and command a higher price.
Buyers want the next big thing, not the status quo.
Talk to multiple buyers.
Building up a picture of the ideal type of buyer for your business is vital. Not only will this profiling activity refine the sales process, but it will also provide you with a focus for marketing your business. Imagine your ideal buyer — what are their values and goals?
You probably wouldn’t buy the first car you test drove, and most people don’t marry the first person they date. The same is true for buyers for your business; how can you know that you are talking to the best possible buyer if you never explored conversations with other potential buyers?
Buyers know that it is in their best interest to isolate a seller, and they are often actively seeking “proprietary deals” where a seller only engages with a single buyer. It is because buyers know that if their goal is to buy a business for the lowest price and on the best terms, the simplest way to do so is to isolate a seller and avoid competition
Get your business valued.
Have your number in mind. Think about who may want to buy your company and what they’d like to see in an acquisition target. That can help you position your company to make it more valuable.
Work closely with your professional advisors to identify potential value issues in your business, as it is better to address them in good time. So, they don’t become value destroyers and undo all the years of hard work and personal sacrifice.
Having your business valued will also allow you to determine in advance what range of value will be of interest to explore. Of course, the number will change over time as your business changes.
Prepare the financial statements.
A potential buyer will want to review financial statements for at least the past three years, even more, if the financial records are available. A multi-year review helps a purchaser identify trends in your business.
The sooner you can start generating and storing financial statements digitally, the more prepared you are for a potential sale.
Increase profitability.
You can take proactive measures to increase the value of your business if you want the best possible price for it. Generating more revenue and profits while you remain the owner increases the value of your business, helping to justify a higher sale price.
Buyers tend to look for profitable companies that have good prospects and are lean. They are on the lookout for growth.
Investors want to buy profitable businesses, so look for places where you can reduce costs and create efficiencies. Then consider creating additional revenue streams.
Establish procedure manual.
You should review and update any operational manuals, training materials, or policies relating to the operation of your business. At the same time, creating and documenting systematic processes, which enable the company to function without your involvement, will put the buyers at ease.
They want to see strong management, repeatable processes, and firm financial information. You want a potential buyer to be confident the business will flourish long after you are gone.
Cultivate an independent workforce.
Buyers prefer businesses that come with low risks and high rewards.
Therefore, you may want to minimize the employee turnover during the transition of ownership as experienced workers bring stability and help generate sales and profits. It would be wise to keep the entire staff informed of your intent to sell the business, as it would ease their mind from the confusion and the anxiety of the change in management.
At the same time, having a solid management team and a reliable workforce will help keep your business running as usual while you balance the competing pressures of leading the company and managing the deal.
If you have made it this far, you can consider yourself well-informed about preparing your business for a sale.
Alternatively, you can discuss your concerns with us. Our core business model is to simplify the exit process for founders who find themselves in limbo when deciding the best exit strategy.
