Are you planning to sell your business?
If your answer is in the affirmative, there is some great news for you.
The good news. A lot of business owners have made good deals while selling their businesses of late. Don’t believe me? Check Whole Foods – the company Amazon bought for £10.6 Billion. There’s money out there. All you need to get it is a sound strategy and a performing business.
The bad news? Business, just like Rome, it isn’t built in a day. There’s a reason why Amazon had to wait one year before wrapping up the acquisition of Whole Foods.
Put simply, the gap between the moment you decided you want to sell your business – and the moment you sell it, should be around one year.
If you put in time and effort in preparing your company for sale, you’ll get more attention from the buyers. Why? Most sellers don’t do the “detailed work” to make their business transparent and easy. When you do it, buyers will know you mean business.
5 Reasons You Would Want to Prepare Your Business for Sale before Going to Market
You can make every part of it sale-able
A lot of business owners dream of selling their business one day for a hefty price. What they don’t know is the fact that some areas of their business aren’t up for sale. The buyer, however, isn’t foolish. He will know which practices of your business are sustainable, and which aren’t.
Hence, unless you don’t prepare your business for sale before going to market, you won’t be able to maximize its value and sale price.
You will learn the real valuation of your Industry
Businesses, like homes, cannot be sold on a whim. First, you need to scour the market to learn the real valuation of your industry. You’d have to ask industry insiders, your financial advisors, brokers and experts before arriving on the final decision of how much your business should cost. Bernard Baxter offers a free business valuation.
As you might guess, this whole process would take some time to complete. So you have to give yourself the necessary time during which you can learn the real valuation of your business.
Management needs to be de-centralized
Imagine a situation: a buyer enters your business and finds out that everything is so centralized that minus you – the CEO, the whole business isn’t sustainable. Do you think that he’d buy such a business which revolves so much around its owner?
Of course not. Buyers look for businesses which can operate with minimum insight. They want teams which are self-sufficient, management which can operate without order and customers which aren’t attracted to a single entity.
Goals are to be met
Tell me: what are the indicators that a business is worth its salt? Yes, the goals. As long as a business is meeting its goals, it will command the respect of the outsiders. Hence, in the time leading up to its sale, make sure your teams are operating at their full capacity.
Once you do this, the buyer will know that the business is performing at full capacity. As a result, he might be willing to pay a tad higher.
Make sure the Financials are in order
There’s a rule of thumb at play here: if you want to sell your business, you should make sure you’re your financial statements are up to date. That will let the buyer know that the real value of the business is true. As a result, the negotiating process would be a whole lot easier.
How to Prepare Your Business for Sale
Now that you’ve learnt the importance of the whole process, let’s take a look at some ways using which you can prepare your business for sale:
Do some Clean Up and Cosmetic Changes
While selling your business, assume that you’re selling your house. Would you sell the later without painting its walls? Or without cleaning up the garage? Of course not. The same is true for your business.
There will be some departments which might not be performing well. Don’t just ostracize its members. Rather, outline the responsibility of each job and KPI’s you want each member and group to meet. Similarly, keep your paperwork updated. Document everything and leave behind nothing.
Prepare Your Management Team
Talking about an essential step a founder can take, it is building a management team that can operate the business without his insight. Even if you hadn’t done this in the past, this step deserves your attention now that you are preparing your business for sale.
You should start letting strings loose without completely handing them over. Yes, it would take a significant amount of time and attention, but the whole process of preparing your management team for life after you would be worth it when you are selling your business.
Get the Financials in order
After a competent, independent management team, one thing which most buyers would love to see is a business with a spotless past. To earn their confidence – and their money, you should have an clear set of financial statements of your business.
Be it the taxes paid till date to the current debit payments – and from current receivables to the positive cash flow, you need to have every document indicating the sound financial performance of your business.
Create a Pre-Sale Improvement Plan
There are three types of areas in every business.
Firstly, a business has some aspects which are running flawlessly, hence able to garner a higher bid from the buyer. Secondly, there would be areas showing some adequacies, which will get an average price. Lastly, there will be areas which are in need of significant improvement, meaning you won’t get much for these unless you don’t improve them.
Now, you need a pre-sale improvement plan for the second and third category. It might include:
- The areas which deserve your immediate attention and what are the necessary steps that might make them more profitable
- Timeline you are going to follow
- Resources you’ll spend on the effort
- To whom the tasks will be assigned to complete improvements in the recommended time period.
Keep it quiet
Finally, no matter how big your company is, you need to keep its sale intentions quiet. Share them only with the key members of your staff and consultants. If possible, make them sign a confidentiality or non-disclosure agreement on this matter.
While your legal and financial advisors might have already signed the confidentiality agreements, to be doubly careful, stress to them the importance of keeping it quiet.
For, if the word ever gets out, an air of uncertainty might be created among your suppliers, customers, and employees, resulting in the devaluation of your business.
As private business owners might tell, every major decision they take is backed up by preparation and careful thought. And since there is no bigger decision than deciding to sell your business, you need to take a lot of information in your stride before pulling the plug. It is where this guide can come in handy.