Perhaps you’d always planned to build a thriving business to eventually sell for a tidy sum – or maybe for unexpected personal reasons it’s best to let your company go sooner rather than later.
No matter what the reason for selling your business, experts agree: it’s best to be prepared well in advance as it can take years to complete a successful sale.
These five tips will help you get a head start on making your business attractive to buyers for the day you’re ready to sell.
- Get a business valuation
Even if a business sale isn’t imminent for the next five years, it isn’t too early to meet with an appraiser. A valuation will give you a realistic picture of what your business is worth right now, and invaluable information on what you can do to improve its value.
When you’re ready to sell, having already had an appraisal can be a real plus for potential buyers. Sharing the details of your valuation shows transparency, creating trust and building credibility—while saving a buyer the expense of getting one done themselves.
Remember that timing is often everything with a business sale. Once you know what your business is worth, you can decide whether it’s best to move forward—or wait for a growth phase or improved economic conditions.
- Make a succession plan
Every business, large or small, needs a succession plan. And when you’re ready to sell, having an exit strategy in place will put a buyer’s mind at ease because you’ll have already ironed out a smooth transition for you and the new owner.
A succession plan should include both the human resources aspect (e.g. a training plan for the new owner and any employees that stay on when ownership is transferred), as well as the management of any financial, legal, or tax issues.
Once you’ve made all the hard decisions about how the business will run without you, be sure to review it once a year to make sure it’s always up to date.
- Tidy up your financials
The biggest red flag for anyone considering a business deal has to be disorganized or incomplete financial records.
A potential buyer will want to see your yearly tax returns for the last three to five years, as well as balance sheets and your profit and loss statements. You may also be asked to share accurate sales and marketing data, the value of your assets and any outstanding liabilities – as well as your plans to resolve them.
- Hire a business broker
Hiring a business broker with a proven track record can really simplify the sales process—especially if you’re too busy to look for an interested buyer or need professional expertise to get your business in order to sell on your preferred timeline.
You’ll want to meet with a few brokers to make sure you find the right fit. Look for someone with experience selling businesses in your industry, a large database of interested buyers, and an impressive closing ratio.
When you interview a broker ask for testimonials and info on the strategies they’ll use to market and sell your business. Reach out to your network for referrals—as with any professional service, when it comes to business brokers an honest recommendation can help you find a winner.
5. Document Systems, Processes, and Procedures
Every business should have systems! Being able to communicate how your business operates is easier with documented systems. Sales process, Accounts Payable process, Hiring procedures, Sales Return procedures, Accounting System, etc. Franchises like Chick-fil-A, Allstate, Dunkin Donuts, The UPS Store, etc are systems of how to they deliver their product and services according to their plan. This is why they train you on their way of doing business. This will help communicate to the buyer, a clearer understanding of how your business operates and set you apart from most small business owners.
Ask your broker about the best way to structure your business sale for the best return. If you’ve built up some solid equity it may be wise to offer a buyer a gradual sale or lease. In addition to a continued income stream for you, this type of arrangement can help make the deal attractive by reducing the new owner’s financial burden.
If you need assistance please give us a call. Byron L. Riley, CPA is a small business specialist in the areas of accounting, bookkeeping, and taxes.