Preparing Your Business to Sell
Every good business plan should include an exit strategy. From the day you begin business operations, you should know when and how you will exit your business.
However, if like most business owners you have not yet prepared your exit strategy, you should begin preparing your business for sale starting today. You never know when a change of circumstances will cause you to rethink your plans. Business owners decide to sell their companies for all kinds of reasons from retirement to the need to liquidate assets.
Even if you have no intention of selling your business this month, or even this year, you should continually keep your eyes on several factors that will affect the profits you will earn when you do decide to sell.
3 Key Factors to Consider:
1. Financial Records
Remove potential obstacles to a sale. Clean up your balance sheet. Write off obsolete inventory and uncollectible receivables. Other possible obstacles to handle in advance of a sale include proper documentation of ownership; registration of patents, copyrights, trademarks and other intellectual property rights; settling lawsuits and claims; and environmental cleanup responsibilities.
Prepare for due diligence
In order to prepare a business for sale, you should gather all the information that a potential Buyer will ask for and rely on when making a buying decision.
Buyer’s will want to review several items during due diligence. The following is a list of what most buyers want to see:
• Previous three year’s profit and loss statements
• Previous three years of balance sheets
• Previous three years tax returns
• Payables – trade or otherwise
• Bank statements
• Lease documents
• Capital equipment lease documents
• Vehicle list / titles to vehicles
• Vendor list, Inventory list, Equipment list, Customer list
• Franchise or licensing agreements
• Employment contracts
• Employee non-compete agreements
• Union contract
Undertake a thorough review of the company books, and other corporate records and ensure that all are complete and up to date. Similarly, make sure that all tax returns and other government filings, licenses and the like have been completed, filed and are current.
Be prepared to answer questions regarding the financial history of the business, including the good periods and the not so good.
2. Company Procedures
The elements that make a business successful are a well-thought out business plan, effective systems, a professional management team and identified growth opportunities. Addressing these elements early on not only prepares your business for sale but will inevitably enhance its value and profitability leading up to the sale.
Potential Buyers will want to see that the business has established processes so that they can duplicate the past successes of the business. Take time to fully document all processes pertinent to the business, from simple items such as how to use the phone system, to more complex items such as the sales process.
Ensure that all employees have completed any state or federal required employee documentation. If there is an employee manual, make sure that it adheres to current company policies. Also, produce an organization chart of all company employees, officers and shareholders.
3. Physical Appearance
A clean business that is in good condition can not only attract new customers, but it can give current customers a better feeling for the type of service they can expect from your company. A potential Buyer’s first impression of a business is equally important.
The following are a few areas to keep in mind:
• The condition of flooring and paint
• Organization of work areas
• Organization of inventory and equipment
• Adequate inventory levels
• Well maintained equipment
• Maintain a good appearance of the facility including the parking area
• Signage (Is there adequate signage to locate the facility and is it in good condition?)
Allow enough time to plan ahead when selling your business. Establishing a time line leading up to the sale enables you to cover everything that needs to be done, and means that your business will be sold in tip top condition, with increasing profits and good growth prospects.
It is never too early to start preparing your business for sale. Even if you decide not to sell your business for years to come, you will have put into place valuable systems and procedures and you will be prepared when the right time to sell your business materializes.