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 a number of other steps a seller needs to take.
The first step in a seller’s preparation is understanding if now is the time to sell. If a business’s current financial picture doesn’t match the owner’s expectations, one or the other has to be adjusted. A seller must also know their reason(s) for selling. It is one of the first questions a buyer will ask so they need to be able to articulate their reason(s).
Ideally, it’s much better when the reason(s) are not urgent. That is why it is better to sell out when times are good than waiting to burn out when they aren’t. Sellers will 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’ true profitability by identifying nonoperational experiences (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 profitability.
Sellers also must 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 business’ 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 excessively dependent on the current owner increases the risk in the eyes of a prospective buyer.
When sellers have a buyer coming out to see their business for the first time, it’s important 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 of these steps is credibility. If sellers want buyers moving forward, they must show them respect by being open, honest and accurate 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 also improve the desirability and the value of their business. Plus, when a buyer makes an accepted offer, the aforementioned preparation can help the deal close quicker.