You may not get the concept now, but there comes a time in every business owner’s life when they want or need to move on from their business. Whether you’re ready to retire, pursue a new venture or simply cash in on your hard work, effectively preparing your business for sale can maximise its value and ensure a smooth transition.
But as with so many aspects of business, fail to plan and you’re planning to fail. It’s vitally important to get your ducks in a row and get your business in the best possible shape for sale. After all, if you’ve invested time, money and energy into building up a successful business, then you want to make sure that you get a decent return on that investment.
In this blog, I’ll share my best advice on how (and importantly when) to prepare your business for a successful sale.
How attractive is your business to potential buyers?
Think about who or what type of organisation would be best suited to take over your company. A larger corporation? A private equity firm? A single entrepreneur? Someone within your business? A family member? Identifying your ideal buyer will help you to promote it as an attractive option for that person or business.
It’s important to present your business in the best light to a potential buyer, and that takes time and effort. Just as you would when selling your house, you need to smarten up its appearance and do your due diligence so that you have all the facts and figures to hand.
That takes time. Consequently, it’s never too early to start planning your exit strategy. Put the right processes and people in place to make the sale process smoother and enhance the value of your business. Below, I’ll go through the essential steps to take to prepare your business for a potential sale.
My #1 factor to sort out before a potential sale
In my opinion, it’s crucial that your business can run without you. You may have been the lifeblood of the business for years, but if it only operates effectively with you onboard then it’s near impossible for you to step away. It certainly won’t be an attractive proposition to a prospective buyer if it’s likely to fail without you there.
You need to be in a position to afford a managing director (MD) with the same level of skill and understanding as you, who’s able to run the business without you. To do that, you need excess profits in the company to pay the MD’s salary. Could your business afford that?
Perhaps you have a credible management team who can continue to drive business success when you step down. That’ll make your business far more attractive to a potential buyer who doesn’t want to run the business themself.
This concept extends to your operations too. Your business systems can’t be wholly reliant on the business owner. Without appropriate systems for marketing, IT, HR, product/ service delivery and so on, your business will struggle to sell.
If a business won’t work without its owner, it’s actually worthless. So the first thing you have to do is to make yourself dispensable. You need a business that runs well without you.
How do you prepare a business for sale?
I find that few business owners are ready for the sale process. Exposing your business to the scrutiny of a buyer’s legal, accounting and tax due diligence process can be daunting. But forewarned is forearmed. Do the preparation work in advance – before you have looming deal deadlines. Getting your house in order at an early stage can pay dividends.
1. Understand your business value
Before you put your business on the market, it’s crucial to know what it’s worth. A formal business valuation will consider factors such as cash flow, assets, market position, supply chain and potential for growth. This’ll give you a realistic selling price and will help you justify that price to potential buyers.
2. Organise your financial records
Potential buyers will want to review your financial statements. In advance, make sure that all of your financial records are accurate and up-to-date. That includes your:
- Profit and loss statements
- Balance sheets
- Tax returns for the past three to five years
- Working capital cycle
- Cash flow forecasts
Know your numbers. Be prepared to answer key questions from potential buyers. That could be your business’s return on investment, profit margins, projected financial performance and details about key suppliers and customers.
3. Improve your business operations
Invest time in creating slick, efficient operations. Streamlined processes and workflows can increase the value of your business and make it more attractive to prospective buyers. There may be areas you could automate with new technology or cost savings you could make. Make sure you have the right people in the right roles. If your business operates efficiently, it appears a better investment.
4. Strengthen customer relationships
A loyal customer base is such a business asset. It’ll be a big tick on a potential buyer’s wishlist. Nurture those customer relationships and handle them with care.
Show off your customer satisfaction levels. Highlight glowing ratings, reviews and case studies. Showcase your customer retention rate and loyalty programs. These are such positive attributes.
Communicate with your customers regularly. Rumours that the business is being sold may cause customers to panic and look into switching providers. Be transparent and reassure your customers to maintain loyalty.
5. Clean up your business’s appearance
First impressions matter. Give your premises a lick of paint, a tidy up and make it look good. The same can be said for your website and social media channels. Make sure they not only look good, but perform well and are up-to-date and accurate. Have your digital performance metrics to hand as that’ll be another aspect a prospective buyer needs to understand.
From another perspective, settle any outstanding legal disputes, overdue payments or unresolved issues. All of this will help your business to look more appealing.
6. Develop a succession plan
You don’t want you business to crumble when you leave, so you need a clear plan for its future. Help the new owner to visualise what they’re stepping into and how it will continue to succeed.
This includes plans for your key employees, your current and future projects, and your most important clients and how best to work with them. This will reassure your buyers that they’re buying into a business with a future and potential to grow.
7. Ask for help
If you’ve never sold a business before, you need outside help. Personally, I hired a business coach to support me during the sale of my small business. I needed guidance from someone who’d been through it and I really benefitted from their experience.
But there are many professional advisers that can help you through this complex process. Seek advice from your accountant in the early stages to find the most tax efficient deal structure. Solicitors and legal advisers can help you to navigate the legalities. Business brokers can provide valuable insights into market conditions and will help you with negotiations. Their expertise can help you achieve the best possible deal.
8. Prepare for due diligence
Your potential buyers are probably going to conduct thorough due diligence before finalising a sale. You’ll need the answers to financial, legal and operational questions. That could cover anything from incorporation documents, share certificates, property leases, title deeds, intellectual property rights and employment contracts to customer and provider agreements.
Being organised and prepared for this process can speed up negotiations and make the buyer feel more confident.
Prepare to step away from your business
By failing to plan for the sale of a business, entrepreneurs expose themselves to all kinds of risks. Don’t make that mistake.
It’s a hard enough decision to leave a business that you’ve built up. And that exit strategy may be years in the making. Rigorously preparing your business for a successful sale will make a huge difference to the outcome. It’ll help you to maximise your business’s value and set it up for future success.
I’ve been through this tricky process myself. I was a small business owner before I became a business coach. I’m well-equipped to support you through planning your exit strategy and ultimately handing over your business. I’d love to work with you on it, so please get in touch and we can talk.
