Proactive Steps to Prepare Your Business for Sale
Provided by HG.org
A business can be a solid investment for many individuals. However, investors may turn away from a prospective sale if the proper prep work has not been laid. Individuals who plan to sell their business can take several proactive steps to properly prepare for this process.
Paperwork is extremely important in these types of transactions. A prospective buyer of a business will want to see cash flow statements, annual reports and balance sheets. He or she may also want to review accounts receivable and accounts payable. Have all paperwork accurately prepared and available to provide to prospective buyers.
Review Job Descriptions
When you know that you will be selling your business, it is important to outline the tasks that you need your team to complete to make the sale as easy as possible. Establish performance indicators that you want your employees or other individuals to meet so that there is a clear path forward.
Just like with a home sale, buyers want to be able to imagine themselves in the space for their own purpose. They do not want to walk into a situation where all they see are expenditures they will have to make at the beginning. If your physical space has a leak, holes or other problems, try to remedy them before placing the business for sale.
Meet with Prospective Brokers
Like with residential sales, you will likely use a broker to help sell your business. Talk to prospective brokers that you think could handle the job. Brokers may also have a pulse about the current market, who potential buyers might be, how to reach certain buyers or how to market well to interested individuals in your industry.
Establish a Sales Price
A broker may offer an opinion about the potential price of your business. However, you may need additional input from trusted sources. Business buyers may see more value when the business has existing systems and teams in place that can keep the business continuing to be a success than a business where there will have to be a massive overhaul immediately after the purchase.
Different buyers may use different ways to evaluate the business. A broker or financial expert may explain some of these. Some evaluation methods use a multiplier of various areas, such as off of profit, revenue or cash flow. Other factors may also weigh in the evaluation, such as the value of equipment, inventory, intellectual property and stock price. Additionally, goodwill and the value of your business’ reputation may also be taken into consideration. When interviewing brokers, you may want to ask about the potential sales price to see if there is a consistent range regarding the potential value of your business.
Market the Sale
When you have properly prepared your business and determined a fair price for it, you can begin considering how you will market your business. You may have a variety of documents that you wish to compile so that you have a comprehensive sales package. These documents may include marketing materials, promotional pictures, financial analysis and other relevant information. You may also provide an overview to potential buyers of the extent of your business assets, inventory, equipment and other physical aspects of the business.
Consult with Your Team
It is important during the sales process that you be able to rely on your team to disseminate the type of information you want to convey and the consistent message you hope to deliver. Your team should be well-versed on explaining the reasons why you are looking to sell and to put this information in a positive light. At the same time, your team may need reassurance from you that they will still be working at the business when new ownership comes in.
Your team will also need to know how to support the transition in ownership, including broad strategies that the new owner hopes to implement as well as technical considerations like changing phone numbers.
Selling a business can be a complex process. It is important that you have professional assistance during this time because the potential consequences are so significant. Be sure that you consult with a business lawyer about what you need to know about this process. Inquire about the types of disclosures that you must provide during this process. You may also want to talk to a tax lawyer about the tax implications of the sale and whether there are any ways to minimize the tax effect caused by the sale.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.