When Should an Owner Prepare To Sell? They should start the day after they buy/start it! If you have the runway, a few years before going to market is ideal. Planning earlier can make the sale easier & more profitable for an owner.
This list is to help a business owner prepare their business for sale. Every business is different, with different needs. Some of these are not urgent, and some may not apply to your situation. I suggest you review this list and find the aspects of your business that need the most help. I would also address any low-hanging fruit that will have a substantial impact. For example, do you have a basic organizational chart with roles and responsibilities for your employees?
Remember, addressing these tasks will often improve your business and make your business easier to run before you sell. I suggest you address these as soon as you can. It will simultaneously improve your current situation and better prepare your business to sell.
Keep in mind, on average, it takes 9-12 months to sell a business. Prepare to Sell: 1-2 months – Listing to Offer: 6-9 months – Offer to Closing: 2-3 months. Also, consider that it can often take longer than a year to find the right buyer and sell.
What Makes a Company Valuable
Financial Preparation:
1. Financial Statements: Ensure accurate, clean, and up-to-date financial statements, including balance sheets, income statements, and cash flow statements. Talk to your accountant and let them know you want to position your business to sell in the next few years.
2. Valuation: Obtain a professional business valuation to determine a realistic asking price. Finding out what your business is worth gives you a 10,000-foot view of your business. It forces you to take a step back and think about on working on the business instead of in the business. Also, it can help prepare you for any sudden life change.
3. Clean Up Finances: Clear up outstanding debts, resolve any pending legal or financial issues, and minimize non-essential expenses.
4. Don’t Give Up $2 to Save 30 Cents by expensing unverifiable, undocumented personal expenses that we won’t be able to add back to your cash flow calculation. As the linked article explains, this is a terrible trade-off, as the title indicates.
5. Tax Records: Organize tax records for the past several years and ensure compliance with all tax obligations. Setting up for the management of tax liability associated with the sale. It is wise to consult with deal structuring professionals and have a point of view for the allocation of the purchase price prior to listing the business.
6. Profitability: Optimize your business operations to maximize profitability in the period leading up to the sale. Continue to focus on revenue growth and bottom-line profitability. Buyers & bankers will be leery of a business that is not growing revenue and profitability.
Legal and Documentation:
7. Contracts and Agreements: Review and organize contracts, agreements, leases, and other legal documents related to the business.
8. Intellectual Property: Ensure proper documentation and protection of intellectual property assets like patents, trademarks, and copyrights.
9. Permits and Licenses: Verify that all required licenses, permits, and certifications are up-to-date and in order.
10. Ownership Documentation: Gather documentation that proves your ownership and provides a clear chain of ownership history.
Operational Excellence:
11. Design the Business to Run Without You: Identify what activities are performed by the owner that can be done by someone else. Think of 2 identical businesses, one that the owner has to work 50 hours a week versus one that the owner works 25 hours per week. Which would you rather buy?
12. Management Team: Maintaining and building a successful, results-oriented team will add value at the closing table. Invest in training and succession planning.
13. Processes and Procedures: Document and streamline operational processes to demonstrate a well-organized business to potential buyers.
14. Employee Contracts: Ensure key employees have employment contracts and non-compete agreements in place. (Note employee non-competes
15. Inventory Management: Manage inventory levels to avoid overstocking or stockouts during the sale process. Often businesses tend to accumulate excess inventory over the years. Excess inventory will often not increase your business value.
16. Customer and Supplier Relationships: Strengthen relationships with key customers and suppliers to enhance the perceived stability of the business. Make sure your customer contact lists are up to date.
17. Diversify Your Revenue: “Customer concentration” refers to the amount of your revenue that relies on a single client. Usually, a business is said to have too much customer concentration if more than 10% of its revenue is reliant on one single client. The best way to guard against a high customer concentration level is to try to spread out your sales and revenue among a broad base of customers.
Marketing and Business Presentation:
18. Business Profile: Create a detailed and enticing business profile highlighting the business’s strengths, history, and growth potential.
19. Facility: Ensure proper maintenance, condition, and appearance issues, and environmental compliance are in order. An independent real estate appraisal before the sale can remove a lot of negotiation hassle and save time when you go to market
20. Equipment: What kind of shape is your equipment in? What is the estimated working life cycle? Assessing the condition & value of equipment and other assets that will be central in the transfer.
21. Branding: Ensure consistent branding across all marketing materials to present a unified image.
22. Marketing Materials: Prepare visually appealing marketing materials, including photos, videos, and brochures.
23. Online Presence: Update & Enhance your business’s online presence, including a professional website and active social media profiles. Many business owners task social media to an employee to update & add content. One good exercise is to open up an incognito tab and search for your business. See what comes up. It may be out date or not a good representation of your company.
24. Google My Business Page: Google’s business page is often at the top of all search. Is it fully filled out, up to date & accurate? How are the reviews?
Transition Plan:
25. Transition & Handover Process: Managing the speed and nature of the exit, degree of seller involvement in the new ownership transition, and seller financing (if applicable). Any sale will also require the signing of a Non-Compete Agreement.
26. Deal Team: Assembling the right professionals to achieve your exit goals (legal, tax, wealth, business broker).
27. Your Next Challenge or Past Time: Moving from the fast-paced world of business ownership is not easy. Before deciding to sell, plan how you will spend your time post-ownership.
Learn More with a Free Consultation
To help you learn more. You can schedule a discovery call with me. There is no obligation, and it is confidential. Your call is an opportunity for a quick meet and greet. I would love to hear about your business journey, and we can go over any questions about exit planning, business valuations, and buying/selling a business.
Also, I can lay out what the path of selling your business looks like for you. Information that you can use to make when you decide to sell much easier and more profitable.
Ben Shaw – Murphy Business Sales of Wilmington
