Tips for Preparing Your Business for Sale
Whether it be a transition into retirement, a change in professional interests, or simply new career opportunities, there will come a point when every business owner has to move on from their company. And as some statistics suggest that entrepreneurs have as much as 80% of their personal net worth tied up in their business, it is imperative that you get the selling process right. With this in mind, keep reading for 5 pro tips as you prepare to sell your business.
Start the Process Early
As the COVID-19 crisis taught everyone, ceasing operations and selling your business in a matter of months is a masterclass on how to receive pennies on the dollar for your enterprise. Bargain investors can smell desperation from a mile away, so you need to be thorough and meticulous in your preparations.
This means getting started on the selling process early. Very early. Like, three years in advance of closing early. Research the market, shore up any glaring weaknesses in your business model, and build a strong pool of qualified buyers. If you own an engineering business, you may even find it useful to hire an M&A Advisor for engineering businesses, which should help you to get a foot in the market if you’re struggling with the M&A process. Even if you were ready to sell yesterday, taking the time to cultivate this demand is something you will be thankful for later.
Get the Financials in Order
Part of this early planning process should involve getting all important financial documents in order. The balance sheet is an important document to present to buyers, as it demonstrates how much of your business’ assets are funded with equity. The income statement is also critical, as it paints a picture of how successful your business is at turning revenue into profit.
However, the king of financial documents when selling your business is the cash flow statement. Simply put, buyers want to be able to see that the business is able to generate free and clear cash from operations. This gives them the opportunity to re-invest the cash and potentially grow wealth through the purchase of your business.
Receive a Professional Valuation
Even for the most meticulous sellers with the most pinpoint accounting practices, putting an accurate valuation on a business can be challenging. For one thing, it can be difficult to emotionally detach yourself from an enterprise that you have spent countless hours, days, and years building. For another, it is likely the first time that you have ever gone through the process of selling a business.
This can all add up to placing an unrealistic price tag on your company, causing it to sit dormant on the market for months at a time without even a nibble.
Therefore, it is extremely worthwhile to enlist the services of a business broker from somewhere like Lion Business Advisors or other business valuation professional to help you arrive at a reasonable price point. Using their vast experience in business transactions and understanding the important valuation multiples entrepreneurs in certain niches are willing to pay, they can expedite the sale of your business without undermining the profit target you hope to attain at closing.
Communicate With Your Employees
Inheriting a highly skilled team that will help ensure seamless operations during the ownership transition is one of the most attractive aspects of a business to prospective buyers.
Nonetheless, as the departing owner, you must be sensitive to the fact that a change in ownership does not mean “business as usual” for your team.
No matter how much you or prospective buyers assure employees that everything will be alright, questions about their ongoing livelihood will be at the forefront of their minds until the sale is finalized and everything is, in fact, business as usual.
Therefore, it is critical that you maintain top-notch communication with your team throughout the selling process. If you know or suspect that certain employees may see changes, reductions, or elimination of their roles, be transparent and help them explore other career options if they so choose.
Remember, even after you sell the business, it will be indelibly linked to your legacy as a businessperson, so be sure to maintain all of the goodwill you have worked so hard to create with your employees on the way out.
Consult an Attorney
The list of documents that need to be in place prior to closing a business sale can be quite daunting. A few of the most likely include:
- Lease agreements
- Non-disclosure agreements
- Business insurance policies
- Employee contracts
- Existing vendor contracts
And these are just a few. In addition, every state, county, and municipality will have its own requirements, so it is important to consult a legal professional to make sure that you are not missing any documents that could cause the sale to fall through.
Focus on the Due Diligence to Ensure a Seamless Business Sale
Selling a business is both an exciting and stressful experience for any entrepreneur. By using any of the 5 tips listed above, you can guarantee that the sale will be as profitable and painless as possible!
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