As we finish one year and start a new one, many business owners begin to consider preparing their business for sale.
For many owners, this simply means sprucing up their operations with cosmetic improvements. However, to be successful in enticing prospective buyers, there are several other steps a seller needs to take.
The first step in a seller's preparation is understanding if now the time is to sell. If a business's current financial picture does not match the owner's expectations, one or the other must be adjusted.
A seller must also know their reasons for selling. It is one of the first questions a buyer will ask so they need to be able to articulate their reasons.
Ideally, it's much better when the reasons are not urgent. That is why it is better to sell when times are good than waiting to burn out when they aren't.
Sellers need to get their books in order. Prospective buyers will want to see at least three years of income tax returns and income statements. They will need to be able to document their business's true profitability by identifying non-operational expenses (i.e., personal auto lease, medical expenses, etc.) Sellers need to be able to quantify and substantiate this because at the end of the day, although buyers are purchasing a business, what they're really buying is its profitability.
Sellers must also make sure all of their legal commitments are in order. This means reviewing their permits, leases, client and vendor contracts, etc. And understanding their impact on the business. For example, if the businesses’ location is key to its performance, a long-term lease with options would be appealing to a buyer.
If an owner is absolutely vital to the business, efforts should be made to gradually delegate key responsibilities to various staff members. A business that is exclusively dependent on the current owner increases the risk in the eyes of a prospective buyer.
When sellers have a buyer coming to see their business for the first time, it's good to make a good first impression. Buyers look for companies that show well because it can often be indicative of an orderly run business.
The common thread running through all these steps is credibility. If sellers want buyers moving forward, they must show their respect by being open, honest and articulate about all things, both good and bad.
Although preparation might seem time consuming, many owners find that taking the above steps not only improves their management practices, it can improve the desirability and the value of their business as well. Plus, when a buyer makes an accepted offer, the forementioned preparation can help the deal close quicker.