If you are thinking about selling a business you own, your primary focus will be to get the highest possible return on your investment. With this in mind, you should be careful and calculated in your preparation to list. Listing a business for sale before it is ready can hinder your ability to maximize profit. All sellers preparing to list their company should have a well thought out plan that enhances its value and attracts more buyers. This begins with understanding the sale process, the state of the business and its industry, and emphasizing areas to improve.
Getting a third-party valuation is the first step every seller should take to find out where they stand. Many sellers think they have a firm grasp on how much their company is worth, but their estimate may differ greatly from what it would sell for on the open market. A business broker can perform a market valuation of your business, typically for free. Brokers take in to account several tangible and intangible factors when appraising your business. This includes evaluating the industry and the competitive environment. It also takes into account cash flow, inventory, debt, business location, competitive advantage and numerous other considerations. A business valuation will give you an accurate idea of what you can expect to receive on the open market, and give you insight as to where you can improve the value of your business. It can also identify potential opportunities and obstacles that can influence the future value and growth of the company.
The valuation will help expose issues within your business that need to be corrected, but you are probably already aware of a few. Work on fixing anything that might be a red flag to a potential buyer. Make sure any pending repairs are done. Renegotiate vendor contracts, and update any existing licenses or permits. It would also be a good idea to create an operating manual for your business, if you haven’t already, so that the next owner has the tools to learn how to run the business. This is something that is very appealing to buyers.
Financial documentation is a critical component of any business sale. Prospective buyers will want to dig deep into financials, and they will want to gain access to them quickly. If you don’t keep up with your bookkeeping regularly, now is the time to get caught up. The documents you need to prepare include profit and loss statements, balance sheets, 3 years of bank statements and tax returns, any existing building or equipment leases, equipment or other assets being sold and cashflow statements, among others. Having thorough and complete books that can be accessed at a moment’s notice gives buyers the impression of a well-run, financially sound firm.
The smartest way to sell a business is to do so confidentially. Confidentiality protects your business and its sensitive information and helps to screen buyers. For this reason, you need to have a Non-Disclosure/Confidentiality Agreement (NDA) drawn up by a third party. Business brokers have a standard NDA that they use to protect their clients. They are also experts at confidential business sales and marketing, knowing how to filter out unqualified buyers and exactly when to release sensitive information about your business. Do not move forward with any interested buyers without having them sign an NDA that legally binds them to maintain confidentiality.
Prepare a business summary to show buyers who agree to sign the confidentiality agreement. This should be a broad overview of the business that details its history and pertinent information about its size, location and customer base. This is meant to serve as a buyer’s introduction to your company, so don’t get to detailed or reveal valuable secrets. It would also be a good idea to explain why you plan on selling the business and if you are going to be available to train the new owner, or stay on in a management role.
Finally, make sure you have an exit strategy in place. This is for your benefit, to make sure you are prepared for life post-sale. It’s generally best practice to have this plan in place well before you decide to sell. An exit strategy and succession plan help you to prepare for an uncertain future. Life can present you with unforeseen circumstances, such as health or financial issues, which might force you to sell before you are ready. For this reason, it’s never too early to formulate an exit strategy. Once again, this is an area where business brokers have expertise and could provide valuable advice. When creating this plan, consider what type of buyer or successor you will be looking for. Figure out if you want to have any involvement in the business after the sale. Also meet with a financial advisor to figure out your tax consequences, and how to manage the proceeds of the sale. Think about any potential offer as well, and what deal terms you will be willing to negotiate on, as well as any that you will not budge on. Thinking ahead and being prepared for different possible scenarios will ensure you get the most out of the sale.
As you can see, preparing to sell a business is not something that should be rushed through. If you are looking to optimize your earnings, and make the sale process smoother and more efficient, you need to put in the work. Focusing on the details will pay off in the long run. Hiring a business broker could be the smartest move you make in the sale preparation. You can rely on their experience to manage the sale and allow them to help take the stress off so you can run your business. Although they do get a commission from the sale, the value they add to the sales process will pay for itself.
When deciding to sell your business, take into consideration the amount of detail and work that goes into the process. Save yourself from making costly mistakes by hiring a business broker to sell it and represent you. If you own a company near Fort Myers, Sarasota or Naples, and are seeking a smooth and profitable sale, contact CIBB today. Our consultation begins with a free business valuation estimate, so you can start by knowing where you stand.