The thought of selling your business is enough to keep you up at night but there are a lot of things you can do now to prepare for when that day comes. Long before that day arrives, you need to start thinking in terms of making your business saleable.
Although every transfer of business ownership is different, some important questions should be asked by the owners – preparation is key to a successful outcome.
Here are a few questions every business owner should ask themselves:
Can my business be sold?
Your business should have these essential elements to make it attractive to a buyer: A solid history of profitability – A loyal and large base of customers – Elements that provide a competitive advantage i.e. intellectual property rights, long-term client contracts – Growth opportunities – Location – A proficient work force.
Am I ready to sell?
Before you sell, you need to make sure you are ready, both emotionally and financially. What will life be like after you make the sale? Let’s put the money aside – what will you do? Remorse often sets in after a business owner hands over the keys to the new owner.
How do I know when it’s time to move on?
Burnout plays a huge factor for most business owners – it’s just not fun anymore.
No desire to sink the necessary capital into the company to take it to the next level.
Lack of skills required to take the business further.
Do I really know what my business is worth?
Most business owners have no idea what their business is worth. There is an art and science to selling a business and this is where a business valuation comes in to play. When a business owner doesn’t know what his/her business is worth, all too often the asking price is too high and this sends out the message to a potential buyer that you aren’t serious about selling.
I cannot reiterate enough how important it is to understand how a potential buyer will scrutinize your business with great intensity. However, there are things you can do to prepare your business for sale – now!
Get your books in order! Provide the buyer with accurate financial statements. Nothing will cause a deal to unravel faster than a potential buyer waiting on financial documents.
You should have these things in place before you place your company on the market:
- Last three years’ profit-and-loss statements.
- Last three years’ balance sheets.
- Year-to-date profit-and-loss statement.
- Current balance sheet.
- Last three years’ full tax returns.
- List of furniture, fixtures and equipment.
- List of inventories.
- Commercial property appraisal or lease agreement.
During the due diligence phase of negotiations, you should be prepared to provide other documentation: Insurance policies – Employment agreements – Contracts – Patents – Equipment leases – Bank statements.
Don’t forget about the aesthetics of your business. Make your business attractive to buyers by ridding it of outdated inventory and ailing equipment. Spread a little paint around and cover the holes in the sofa with some throw pillows.
Qualify Potential Buyers. Why would you waste your time working with a buyer who is unable to complete the transaction? It goes without saying that all interested buyers should sign a confidentiality agreement before sending anything out but you should also require some basic information from them as well.
- Name and all contact information.
- Previous employment and business ownership.
- Educational background.
- Funds available to invest and sources of financing.
- Minimum monthly income requirement.
- Intended timeframe for completing a transaction.
- Reason for interest in your business.
Don’t be upset if an offer comes in that doesn’t meet your expectations. Most sellers go into this hoping to receive a full-cash offer but the fact is that most buyers make a down payment and then pay some or all of the remaining balance in installments.
Setting realistic expectations will help avoid surprises. Selling your business can be a long, laborious journey, but there is light at the end of the tunnel – and it isn’t a train – it’s your reward for hanging in there!
Contact us for a free business review today.