Preparing a business for sale is similar to selling your home. In some cases, it may take a year or more to accomplish. The state of the economy or your industry is often just a minor factor when preparing your business for sale. Often it is an unrelated incident that compels you to put your company on the market.
Regardless of the economic cycle, there are a number of activities you should begin now to make your business more attractive to purchasers. The key to preparation is to think like a buyer. You know your business and industry best; therefore, you are in the best position to evaluate it from a buyer's perspective.
The Advisory Team
Begin by assembling an advisory team to assist you with the selling process. Although this process can take much research and interviewing, the right advisory team can help you maximize the sale of your business and help you avoid costly mistakes.
Your advisory team's role is to help you prepare for and manage the sale, including closing the deal. The key is to retain resources with the experience in selling a small business. Your team should include experienced professionals from the legal, accounting (tax), and investment banking (business broker) fields. These professionals should be selected based upon:
Professional experience. You want people who are good at what they do. The best people have a reputation that precedes them, which usually makes them easier to find.
Relevant experience. An academic understanding of the preparation, valuation, and sales negotiation process is not enough. You need someone with actual experience in selling a business in an industry or market similar to yours.
Willingness to work with you. The selling process can be demanding. Tolerance for short deadlines, the ability to respond to your questions rapidly, and a willingness to be available late nights or on weekends is important. If your chosen advisors can't be available when you need them, consider selecting other people.
Price should only be a secondary consideration once you think you have found the best fit. When it comes to professional advisors, you generally get what you pay for. Pay for the best team you can get because it will be far more beneficial in the long run.
Business Brokers
Many small business sales involve a professional business broker. A broker's duties are similar to a real estate agent: they will help you prepare to market your business and provide a "listing". They can help you sell by increasing the visibility of your business, bringing you high quality prospects, supporting the negotiating process, and simplifying paperwork.
A broker will often charge a commission of 10% or more of the final sales price. This may be worth it if the broker helps you negotiate a price that's considerably higher than you or your advisory team could have done on your own. However, if your team is experienced in the selling process, a broker might not add much value. If you decide to use a broker, choose one that has experience selling businesses in your industry. Ask around?the better brokers have established a reputation for themselves.
Cleaning the House
Pretend you're a buyer. If you were looking to acquire a business, what would you look for? How important is profitability and growth potential, loyal and satisfied customers, well-documented policies, operating procedures, sound infrastructure and systems, and solid employees? How credible does the operation "feel", and do you have confidence in the information provided during due diligence to make a buying decision? Don't ignore your gut reactions. If a topic is potentially important to a buyer, then it should go on the house cleaning list.
Thinking like a buyer means making your business attractive
before the sales process begins. The steps you take will enhance the value or your business in the eyes of a prospective buyer, resulting in a faster and more lucrative sale. Taking these steps will also improve your on-going operation, which is beneficial even if you don't sell. The bottom line for you is that making your business attractive to a future buyer puts money in your pocket, regardless of the eventual outcome.
Consider the following steps:
Update your business plan and financial models.
Ensure current and accurate financial reporting and accounting
Clean up the Balance Sheet
Document your key business/operating processes (non-financial)
Organize and complete your files (customer, vendor, lease contracts)
Organize and complete your licenses (federal, state, local insurances)
Eliminate unnecessary overhead
Capitalize on current profitable growth
Confidentiality is Key
Use the utmost care when letting others know that you're planning to sell your business. Control when information about your sale is released as much as possible. Information made public too early can be harmful. For example, employees may react to your intent to sell by leaving for other jobs. Competitors who are aware of your plans might try to persuade your loyal customers to switch. Your customers might think you are less committed to providing them with continued levels of service if they know you are planning to sell.
Ideally, the information about your business sale is made public after you've located a seller and a deal has been finalized. How much to communicate depends on the situation, but think about what you make public before you speak.
In summary, with the right set of advisors and proper pre-sales preparation you should have a relatively smooth start to marketing and selling your business. Remember to maintain focus on existing operations and let your team do the heavy lifting.
