As a business owner, you have one opportunity to sell your business. Often, your business sale is the primary means of funding your retirement. This is a life event you do not want to take lightly. Below, Eric Gall, founder and licensed broker of Edison Business Advisors, shares eleven helpful tips to help prepare your business for sale. Some are very easy to complete, while others may take time and investment to implement; however, each tip will make your business more attractive to buyers and increase its value and the size of your retirement fund.
- Start preparing your business for sale well in advance
This will give you time to address any potential concerns that may decrease the value of your business. Strive to get your business in the best possible financial and operational condition so you can command the best possible price. Certified exit planners can be an excellent resource to assist you with identifying areas to improve and providing solutions to implement.
- Get your business in good financial health
It is always better to sell your business when your revenues and profits are on the rise to command a higher price. A growing business generally indicates more upside to buyers, and they will perceive more value.
- Keep clean books
Buyers are going to examine your financial records. Maintaining clean books is essential for building trust and confidence and justifying the asking price. Clean books are organized, up-to-date, and accurate financial records. They assist with taxes and audits and ensure you are making business decisions based on the best available information.
On the other hand, not reporting cash to avoid paying taxes can decrease the value of your business. Buyers are hesitant to pay more for unreported cash, as they feel the business owner has already extracted this value from the business by not paying taxes. In addition, proving unreported cash can be difficult and many buyers are not willing to take the time to verify it. It is advantageous to start reporting all cash or implement a provable reporting system of your unreported cash to share with buyers.
- Develop a strong management team
If your business relies on you to run the day-to-day operations, take action to develop or hire a strong management team so your business can run without you. This will demonstrate to buyers your business is well run and can continue to succeed after you sell.
- Diversify your customers, products, or services
Reduce the risk associated with relying on a small number of customers, products, or services by diversifying your customer base or expanding the products or services you offer. This shows your business is not overly dependent on a few customers, products, or services and can continue to generate revenue in the future should a customer be lost, or a product or service no longer be in demand.
- Identify and document processes, methods, and tools
Identify and document your processes, methods, and tools used to produce your products or provide your services to customers. Also, document any intellectual property, i.e., patents, trademarks, and copyrights. Compile a list of assets that will be transferred with your business, such as equipment, inventory, and customer databases. Doing so gives buyers a clear understanding of how your business operates and what they are acquiring. It shows buyers your business is well run and can continue to be successful after you sell.
- Invest in marketing and branding
Investing in marketing and branding can pay off when selling your business. A well-established marketing plan and brand image allows buyers to focus on other areas to expand and grow the business.
- Hire a business broker
The International Business Brokers Association (IBBA) reports an experienced and credentialed business broker adds as much as 20% to the selling price. This will easily cover the commission you will pay. Also, attempting to execute a sale yourself distracts you from your day-to-day operations. This could result in a degradation of your business’s financial performance and negatively impact your sale price. A business broker’s job is to remove this burden from you so you can continue to run your business and maximize its value.
- Set a fair price from the start
Business owners often overestimate the value of their business as they desire to recoup the time, effort, and money they put into starting and growing their business. Listen to the advice of your business broker and price your business accordingly. It is important to understand you are competing against other businesses for sale. Overpricing your business will deter buyers and cause them to move onto other businesses that are priced fairly.
- Be prepared to negotiate
Buyers are likely to offer a price lower than your asking price. Be willing and prepared to compromise on some things to get a deal done, especially if you trust and like the buyer.
- Provide buyers the necessary information on your business
Buyers will want to perform an in-depth due diligence of your business to make an informed decision. It is important to willingly share requested items, except for extremely confidential information, such as customer lists and employee contact details. Delays in providing necessary information about your business are often a significant contributor to buyers backing out of deals.
Whether you implement all eleven tips shared by Eric Gall or just a few, the hope is these tips will help make your business more attractive to buyers and increase its value and the size of your retirement fund.
To learn more about Eric Gall, founder and licensed broker of Edison Business Advisors, click here.