If you’re a business owner and have reached the decision to sell your business, regardless of the reason some “due diligence” is necessary to ensure the process is as easy and profitable as possible. We certainly know that potential buyers will do their “due diligence” so it is best to be well-prepared.
Similar to selling a house, there is a lot of planning that needs to happen, and it can be overwhelming. But we’ve helped many business owners to sell their business and want to share some of the key steps you can take to prepare your business for sale.
Define your goals and financial needs.
An important first step in getting your business ready for sale is to define your goals and relevant financial needs. For example, do you want to sell 100% of your business at closing and walk away with the cash, or do you want to pass the business to family members or employees? Another decision you need to make before selling your business is, do you need or want to keep working for another 3 – 5 years after selling your business? Have you considered your cash needs?
Know your numbers.
Messy or incomplete books can kill a deal before it even starts, so an important early step in preparing your business for sale is to organize your business financials. This includes preparing financial statements and tax returns for the past three to five years, as well as gathering other important financial documents such as bank statements, accounts receivable/payable reports, and relative gross sales and net income. The use of accounting software that allows financial reports to be updated frequently is extremely helpful to the process.
Create an advisory team.
Forming a team of trusted business advisors can help you navigate through unchartered territories of selling a business such as the structure of the deal, ways to retain key employees, cash flow planning, etc. Your team can consist of a business intermediary with valuation expertise, accountants, tax advisors, and an attorney with experience in M&A business transactions. You may also wish to have representation from your financial advisor and estate planning attorney.
Get a valuation.
Have your business valued by your business broker/intermediary or a professional appraiser. This will help you determine a fair asking price for your business and will give you a realistic view of what buyers would be willing to pay. Remember the #1 reason that healthy businesses are not sold is because they are overpriced. That does NOT mean leaving money on the table.
Prepare a marketing package.
This should include a detailed description of your business, financial statements, and other relevant information that potential buyers will need to make an informed decision. These services should be provided by a qualified business broker/intermediary.
Identify potential buyers.
Consider who might be interested in buying your business and reach out to them directly or through a broker/intermediary. Identifying potential buyers before you list your business for sale can help increase your pool of potential buyers, but it also allows you to be more selective in who you’re considering to potentially run the business you’ve worked so hard to build.
Selling a business can be a complex process, so it’s not something you want to try to do on your own. Leveraging the expertise of accountants, attorneys, professional business intermediaries, and other key professionals will help ensure a successful, profitable business transaction. If you’re looking to sell your business, find out how our 30 years of experience can work for you.
