Choosing to sell a company can easily be one of the most important decisions a business owner will ever make in their life. That is why it is important to be very prepared to sell your business in order to sell it at the price that it is agreeable to you, the seller. However, preparation starts years in advance. Here are 7 steps to take to ensure your business is ready for sale:
During the due diligence period, the buyer will perform a deep analysis of the company’s financials, dating back at least three years. In effect, the owners of the business must ensure that key accounting and legal matters are up to date and in compliance. Any issues spotted in the financial analysis could lead to a lowering of the asking price due to issues such as tax non compliance or unreported liabilities.
Most companies will have issues on the back burner that have been neglected for some time. Before selling, it is important to take care of those issues sooner rather than later. Depending on the severity of the issue, it is best to create a strategy for resolving the issue to present to the buyer in a proactive manner.
Buyer-Seller Compatibility: There are different types of buyers for different types of business models. Depending on your company’s model, there may be a type of buyer you may want to approach or consider. A financial buyer would like to see free cash flow, upward trending revenues, and a strong core management team. A strategic buyer wants to see a strong, differentiated product/service, market share, brand recognition, and growing profits. An internal buyer wants to see strong financials, positive corporate culture, and diverse product offerings or services. Be sure to also do your own due diligence on the buyer, as they are on your business for sale.
To make your buyer less wary of the selling price, you have to be able to convey the value that your company offers to validate the selling price. In order to do this, create S.M.A.R.T. goals to reach your targets such as improving profits or investing more in R&D to diversify product offerings. This will help deliver the value of your business.
Know Your Industry: Make sure to be aware of your company’s current market, competitors, and driving forces. Consider things such as net tax and the local M&A market for your industry. These will all inform you to be able to calculate a walk-away number that you can be sure of when you sit down to begin negotiations.
Keep The Show Running: Preparing your business for sale is no easy task and definitely will distract you from your daily business operations, especially for small business owners that are operating under several different capacities. The last thing you want is downward trending revenues due to “distractions.” It’s best to assemble a trusted team of professionals including an attorney, an accountant, and a business broker to help coordinate the selling process.
What Now? Make sure to also consider what you will do after the sale has gone through and the business is no longer yours. Will you retire? Join the board of trustees? Buy a new business? Knowing what to do post-sale will help reduce the chance of buyer’s remorse or just plain old boredom. The opportunities are endless!