What defines a successful sale of a business? In my view, it will be getting a realistic price and that the business will continue to be successful once you have exited it.
Unfortunately that does not happen in many instances. So what do you need to do to prepare your business for sale? Some of the more important actions include:
- Optimize your profits and cash flow – these two elements are the key drivers in determining the value of a business. Make sure these are a true reflection of your trading environment. A buyer wants to see a sound track record but is buying the future possibilities of the business. He is basing his valuation on your history and his willingness to buy on the future potential.
- Reflect the true trading position of your company. Take out all those “hidden” costs that are not related to your normal business operations. Highlight unexpected costs explaining why they are not normal business.
- Get rid of redundant assets. This includes that pleasure boat you have registered in your business!
- Plan for management continuity. Make sure you have management in place so that the business can run without you. The added advantage of this is that you can go on holiday now!
- Don’t do anything out of the ordinary. Keep operating as normal. Don’t suddenly increase salaries and incentives just because you plan to exit the business.
- Make sure all your processes are fully defined and that these are supported by excellent information systems.
- Make sure you have key contracts locked in. For example, your business location might be key to future success. Make sure your lease extends well beyond any sales date.
- If at all possible, sell the business in its entirety. You have no control over the new owner which could impact your return from the business if you sell it on terms.
- Make sure that there are no ownership issues with intellectual assets. Settle any legal issues facing the business. Make sure that you have withdrawn any personal guarantees you might have given your bank.
- Clean everything – just as in selling your house, you want to make a good impression with the prospective buyer.
- Get advice on the tax implications of selling your business.
- Can your unique customer contracts be transferred to a new owner? Make sure this is possible as you don’t necessarily want to sell your legal entity but rather the business itself.
- Qualify your buyer – can they afford the business? Will they be able to run the business? Will they treat your staff as you have done?
- Identify what is not for sale before you put your business on the market. You might want to continue owning the business premises and rent it out to the buyer. You might be prepared to work for the seller for a fixed period.
- Use professional who have done this before. This could include lawyers, accountants or business brokers.
- Make sure you really want to sell!
So when should you start preparing your business for sale? The answer is today, right now! No matter where you are in the establishment of your business, you should be preparing it for sale. This fortunately will also have the benefit of you have a more successful business. You can learn more about improving your business by becoming a subscriber.