Selling your business can be a lengthy process so the sooner you start preparing your business for sale, the better. What we mean by preparing a business for sale is to spend time now maximizing the value of the business for a potential buyer. While your business might be performing well from your perspective, prospective buyers might not perceive it the same way.
As an example, they may identify you as a key person (i.e. if you left would sales and operations be detrimentally affected and therefore decrease the value?) Taking steps to remove yourself from the running of the business now, will increase its future value.
This is just one measure to increase business value. Here are some additional steps you can take before you post your “Business for Sale” advert.
Make Sure You’re Ready To Sell Your Business
Firstly, and most importantly, make sure you really want to sell your business. A lot of small business owners sell their company only to regret it later. You can take our free PreScore evaluation to ensure that you have thoroughly thought through this major life decision. This decision will affect your personally and financially for years to come.
Know Your Options
Make sure you have worked through all the exit strategies available to you. While you might want out, there may be alternatives to putting your business on the market. Read through our Best Business Exit Strategies to familiarize yourself with all the options.
Know Your Value
Check out our Business Valuation Calculator to see your Value Builder Score. This score gives you a current assessment of where your business is at as well as direction for preparing your business for sale. You only need to answer a few questions and you’ll receive your business’s score out of 100.
Pricing Your Business
Once you know how to improve your business’s value, the next step is calculating that value in monetary terms. There are many ways to work out a sale price, from multiples of EBITDA to Market Value to Discounted Cash Flows. Which method to use can be dependent on your industry and the specific business for sale. This brings us to the next point…
Seek Advice
Get professional business advice. As you would rely on a medical professional to operate or an IT professional for network configurations, so too should you look to business professionals when selling your entity. Experienced business advisors like Allevi8HQ can walk you through every step of the process. We can help you identify key areas in your business to unlock value and legitimately increase the sale price before you go to market. We offer a wide range of business advisory services and can help you achieve your short to long-term goals.
Be Prepared
You know your business backwards, but potential buyers do not. Make sure you have all the information they need to get to know your business. Think of the process someone goes through to buy a car. If you told them your car was for sale they probably wouldn’t buy it on the spot as they would need to know more. What make and model is it? What year was it built? What is the current odometer reading? How many previous owners were there? Was it ever in an accident? Etc.
The more accurate information you can provide, the easier it is for prospective buyers to evaluate the business for sale.
Usual information to have readily available would include:
1. Annual Financial Statements and Tax Returns
What are your Sales, Cost of Sales, Operating Costs and Profit annually?
What assets (equipment, machinery, intellectual property, cash) do you have? Who’s name are they in?
What liabilities (bank loans, creditors) do you have?
Do you have enough money in the bank to pay salaries and suppliers?
Are you up to date with all tax returns?
2. Customer and Employee Lists
Do you have a customer database and is it up to date?
Are there any deals that are close to being signed-off or any existing deals that are up for renewal?
Do you have a list of your employees and their roles?
3. Contracts and Agreements
Do you have all your existing contracts with employees, suppliers and customers on hand?
Do you have a lease agreement and will the property owner accept a new lessee?
Do you have up to date information on software licenses and their expiry or subscription renewal dates?
Be Patient
Preparing a business for sale, finding a suitable buyer and concluding a sale can take time. The more prepared you are, the smoother the whole process will be. Not rushing into business sales will make sure you don’t make any rash decisions or undervalue your business.
While all the information above is useful, in our experience, every business is different and will require different preparation techniques. Get in touch with one of our advisors to see how we can assist you in this important process and maximize your business’s value.
