If you are thinking about selling, now might be the right time. There are many buyers ready to buy a good business today. With competitive lending rates, buying a business is increasingly attainable. Less risk and immediate cash flow reduces risk over a business start-up and millennial entrepreneurs are taking notice.
There will be a large amount of business owners retiring in the next five years. It is critical to be well prepared for the sale of your business. You must identify and remove as many roadblocks as possible before even listing your business for sale and talking with potential buyers.
Whether you plan to sell this year or next, you want to prepare to be competitive in an expanding market.
1) Identify Key Attributes
When looking at your business, put yourself in a potential Buyers shoes. What attributes of your business are most valuable to potential buyers. Make a list of what your business does exceptionally well. From the list, pick the attributes that represent the biggest value. Some examples include: intellectual property, efficient sales channels, existing customer contracts, lease and location, machinery and equipment, processes, reputation and other unique strengths. Understanding these attributes and ensuring you can deliver them to a new owner will lead to a smoother transaction. There are also different types of buyers. Ensure you can communicate the value of the business to each type, as different buyers will value different attributes.
2) Boost Buyer Confidence
Add value to your business by boosting buyer confidence. Investors are investing into the future and they need reassurance. A well thought out business plan makes the difference. Even if the investors have different ideas for the future of the business, having budgets, reports and financial forecasts will add value by reassuring the buyers. Always show, don’t tell.
3) Profits – Steady as She Goes
Nobody wants to see hockey stick projections, where most of growth occurs next year.
To be honest, it just looks unrealistic and will set a red flag in the buyers mind.
Buyers want businesses with a history of steady revenue growth. What can you do to stabilize profitability over the next three years? Of course, you aslo want to maximize profits as well.
Document how you did it in your business plan and reporting. This will help increase the perceived value of the business in the minds of prospective buyers.
4) Clean House
When you prepare a house for sale, you spruce it up and get it looking its best. The same principle is true for a business. Before you put your business up for sale, clean up your balance sheet.
Get rid of dead stock, redundant assets, all the broken equipment in the corner of the shop.
If you own land and investments thorough your business that are not contributing to the business itself, clear them out. Clean up liabilities by writing off bad debt. Take care of any dirty laundry such as disputes and litigations. You will have to provide full disclosure when selling your business. It is always best to lay it all on the table and show how you resolved any issues.
5) Handshakes Don’t Sell Businesses
Handshakes don’t sell businesses, formalized contracts do.
Update your contracts with all your key relationships, whether it is suppliers, customers, or even the lease. Get it in writing.
6) You Need an Accountant
Your financials need to be accurate and transparent. They must be prepared by an Accountant to a minimum standard of Notice to Reader. Buyers need accurate information from a trusted source. Accountant prepared financial statements add credibility. Eliminate doubt in the buyers mind and have your financials ready.
7) Are You Number One?
If you are the secret ingredient in the success of your business, you need to hire a manager. When an owner is the key to a business, where is the value in the business when the owner leaves? Start the process of separating yourself from the business. Build a team. As scary as it sounds, your business needs to run without you.
8) Start Early to Maximize Tax Benefits
Tax and legal planning will achieve maximum proceeds from the sale. Did you know family trusts can be a minimize tax on a sale but need to be in place for two years before a sale occurs? A legal and tax advisor can ensure you maximize the transaction.
Working with a Business Broker will help.
The Larkspur Difference is helping you identify and remove red flags before the sale and a targeted marketing plan the gets results. Call today for a free consultation.