Below are the 10 most important things you can do to prepare your business for sale. And in my opinion. #10 is the most important. Way to often a seller and I will decide on a selling price – I will begin to market the business and the seller takes a mental vacation. I get a good buyer in who sees the current revenues are going down. Major problem – not just for the seller but for the lender funding the deal.
1. Get a business valuation. Contact a local business broker who is familiar with your business for a broker’s opinion of value.
2. Get your books in order. Brokers evaluating your business generally require at least three years’ worth of financial information. The more formal your statements (accountant-reviewed or -prepared vs. internally generated statements), the better the impression you’ll make-and the easier the due diligence for a buyer. Tax returns are a must.
3. Understand the true profitability of your business. Most privately held businesses claim a variety of nonoperational expenses. Make sure you have supporting documentation for these expenses. For example, your business may be paying for your personal automobile lease. In addition, there may be infrequent expenses you have incurred during the past three years that should be excluded in a buyer’s analysis of recurring cash flow. There may be moving expenses if you’ve moved to a larger facility or unusual legal expenses.
4. Consult your financial advisor. It’s wise to speak to your tax advisor for help planning your financial future. Understanding your personal and corporate tax situation may also help you recognize your options with regard to deal structure.
5. Make a good first impression. Will a buyer visiting your shop for the first time see order or chaos? Buyers look for companies that show well, as an orderly shop is often indicative of an orderly management team and back-room operations.
6. Organize your legal paperwork. Review your incorporation papers, permits, licensing agreements, leases, customer and vendor contracts, etc. Make sure you have them readily available, current and in order.
7. Consider management succession. If you’re absolutely vital to your business, who will a buyer be able to turn to for help running the business after you leave? You should have a succession plan in place before going to market.
8. Know your reason for selling. Buyers are always curious as to why a seller wants to exit a business. (If it’s so great, why are you leaving?) Be prepared to articulate your reasons.
9. Ask your broker to recommend a SBA lender and get your business pre-qualified.
10. Keep your eye on the ball. Don’t let your business performance decline because you’re too focused on the sale of your business. This will only give buyers additional negotiating power to lower their offers.