The act of priming your business for market increases its value, and helps you embrace an assortment of challenges and opportunities.
I know what you’re thinking because I hear it all the time. “I’m not ready to sell my business.” “I am not ready to retire.” “Business is too good right now for me to sell.”
While all that might be true, there’s still great reasons to consider preparing your firm for a sale. Here are a couple that come to mind:
- It’s always better to be ready to sell your businesses when you want to, and not when you need to. The overwhelming majority of businesses, however, are not ready. And that’s the problem. When a great opportunity to sell comes your way, being unprepared can kill the deal.
- Other factors that may necessitate a sale can include illness, death, sudden relocation, loss of staff, exhaustion, and more. The last thing you want to worry about during a time of trouble is getting the business in order so that you can sell. Furthermore, not being prepared can lead to a low value, or in a worst-case scenario, being forced to close the doors.
The good news is that most of the steps you take to prepare your firm to sell are good business practices that will benefit your business in the long run. The question of selling or closing the doors is one that all business owners must face at some point. Selling is generally the better choice. You have spent years building a reputation, a team, and a vision. As an entrepreneur, you should want to ensure the continued success of the people who helped build your brand. A well-executed sale does just that.
But let’s look into this a bit deeper and ask a few key questions.
- Are you prepared to sell your business today?
- Could you respond to a strategic buyer if they were to approach your business about a sale?
- Do you have a plan for your business to continue without you should your circumstances change?
- Can you respond to questions about your competitive advantage and market fit?
A potential buyer is going to spend a lot of time on due diligence and reviewing your firm’s history. It will take you even longer to position your firm for a good first impression. The earlier you get started, the better.
The first thing a potential buyer will ask for is a copy of your financial statements going back at least three years. Up to date, clean, and audited financials will get you started off on the right foot. You will also want to ensure your business has contracts in place with customers, employees, and suppliers. Rushing around getting contracts negotiated before a sale may send up red flags to your customers and staff, so the ideal time to put these in place is during normal business operations.
Understand your motivations and goals for selling your business and ensure that you maximize the value you can receive for your business. Some other things you can do to prepare for a sale include:
- Create a strategic plan including expected future revenue (the higher the backlog the better).
- Create a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis.
- Ensure your business documentation (key processes, procedures, contracts, records, etc.) is in place and easily accessible.
- Prepare management and employee succession plans.
- Understand what your valuation is, and assemble records on anything that can show a good business reputation and good customer relationships.
When preparing to sell, think of it from a buyer’s perspective. If you were going to buy a firm, what would you like to see? What would make a good first impression on you? This will allow you to position your business for the highest value, and will make your business more successful. Today is the day to start preparing your business for sale.
Phil Keil is a consultant with Zweig Group’s M&A services. Contact him at pkeil@zweiggroup.com.
