In theory, you only sell your business once, so you’ve got one chance to get it right. You don’t want to regret selling your business for less than it’s worth due to poor preparation. Never forget, that having all the selling tools in place also facilitates a position of strength during the negotiation process.
If you’re in the process of the sale or looking to sell your business, we hope this blog post gives you insight on what you can do to make it a smooth process!
Planning the Sale of your Business
The process of selling your business usually begins long before you put it on the market! Typically, it will take 1 to 2 years to grow and position the company If you are looking to grow and position the company dependent upon the condition of the company and its markets. The longer that you have a credible and documented history, the better your forecast will sound to a potential buyer. You want to ensure your business is represented at its best so you can show prospective buyers the benefits of buying your business. This could be as simple as making sure your office is clean, painted and presentable or getting your audited financial statements ready to be reviewed.
Make Yourself Dispensable
The easier you can make it for a buyer to step into your role the better! If you have all the knowledge and skills to run the business, the buyer’s greatest fear is that the business will walk out the door when you do. So you must make them feel secure and comfortable stepping into your role. Document the policies and procedures that exist as unwritten rules. It is advisable to systemize the various functions of your business and create a standard operating procedures manual (SOP). This will make it easy for any buyer to step into your role and operate the business without the need to rely on you. Each employee should have a documented clearly defined role, and a designated set of tasks and procedures, which leads to measurable and desired outcomes.
It also helps to document the relationships, which are key to your business. Make sure to highlight anyone who is vital to your business and what makes it a special relationship! Convert any verbal agreements with suppliers and clients into written agreements wherever possible. Written agreements will make your business look stronger and build confidence in potential buyers. It will also give the buyer something to refer to if they can’t remember what was agreed upon. Have all agreements bound together, examine existing contracts with suppliers and customers to ensure they will not expire or require renegotiation just as a new owner steps in. Build a file containing potential liabilities from any agreements. Input all sales data into a customer relationship management (CRM) system, which not only contains all sales data it will enhance the value of the company by making potential buyers feel there is substance behind the data. It is also a great program to share notes and keep track of each customer, business relationship etc.
You will improve the perception and value to the buyer and may increase the price you can ask for your business once you have the business ready for sale. Here are some typical areas that need to be addressed:
- Inventory: if it isn’t moving or no longer needed, then sell it! This will improve your sales figures, and eliminate disputes about the value of the inventory at the time of sale.
- Equipment: If any of your equipment is obsolete or no longer necessary then it should be sold. This also includes all machinery, spare parts and scraps that are no longer required.
- Business premises: Try to look at your office/warehouse with the eyes of the buyer. Is it clean? Try to maintain, clean and paint the premises when needed. Also, ensure that the premises comply with all regulatory requirements.
- Commercial premises leases: Review business premises leases and ensure the lease does not expire or require renegotiation during the time when you plan to sell the business.
- Employees: If they are a vital employee to your business, retaining them might be vital for the sale of the business. Plan meetings with the potential buyer on why they are key to the business and do whatever you can to ensure their stability in the company during the sale.
A single source for all corporate policies and procedures should be kept up to date and available for any potential buyer.
You must make sure your financial records are up to date to clearly demonstrate the true profitability of your business to a potential buyer. This could be by collecting payments from overdue clients (if there’s too much debt this could be discouraging to the potential buyer) and at the same time make sure to pay all of your vendors and suppliers on time to ensure a positive impression on your business. Make sure to also produce monthly financial reports to demonstrate to your buyer your ability to monitor and manage the performance of your business.
Prepare A Buyer’s Information Pack
Buyers will be working through their own due diligence process and will want to know exactly what they are getting for the purchase price. It’s a good idea to prepare information packs for genuine potential buyers. When selling a business, obtain professional, financial and legal advice to prepare the required information and documentation and to ensure you comply with the requirements for a valid sale.
If you have questions in regards to how to prepare your business for sale…. Comment below!