“The best way to prepare your business for sale is to make it into the kind of business you wouldn’t want to sell.” That’s the view of John F. Dini, author of 11 Things You Absolutely Need to Know About Selling Your Business. And if you’re an entrepreneur, selling your business successfully might be part of your strategic plan.
If you don’t “tune up” your business operations a good two to four years before you plan to sell, you might have to take a price cut or you may find it’s not saleable at all.
Choose the Timing
The right time to sell your business is when it is successful and operating at its peak. Don’t wait until things start to slide, when your prospective buyers are less likely to pay the real value of the work you’ve put in over the years. It’s also important to sell when you, personally, are ready. When you’re no longer enjoying what you do, or you view a growth opportunity as more work, that’s the time you should think of parting ways with a successful business.
Focus on Profitability
To make your business attractive to buyers, it’s essential to show the highest possible profit margins. Streamline your processes, cut costs as much as you can without compromising quality, and make your operations as lean as possible to show the maximum profitability.
Take steps to reduce the amount of risk faced by the business, which can affect its value significantly. Some ways to do this are:
- Create recurring revenue streams instead of starting over again every day, month, or year.
- Reduce your reliance on one or a few major customers. Ideally, no single customer should provide more than 10 percent of your income.
- Focus on putting processes in place and having people who can execute them. The value of any business is reduced if the owner must be involved in every aspect of the operations.
- Track your financial metrics vs. the industry you are in. The better your individual metrics are by comparison to other companies, the lower the risk to a buyer.
- Reduce your reliance on particular suppliers. If a strike or catastrophe occurs to prevent delivery by your main supplier and you don’t have a back-up plan, the value of your business will immediately reduce.
Set the Price
Determining a feasible price to sell your business shouldn’t be based on what you want to get out of the deal, or you’re likely to be disappointed. A fair price is based on what your buyer believes he can make out of purchasing it.
Start by getting a professional appraisal based on income, assets, and market comparisons, so you have some objective numbers on which to base your pricing. This will give you credibility with prospects, as well as help you manage your own expectations.
Before you can really begin promoting your business for sale, you’ll need to strategically identify the types of buyers to target.
Once you know who your prospective buyers are, create demand through effective presentation. Just as curb appeal matters when you’re selling real estate, a business for sale needs to look good on paper, online, and on land.
Give your premises a coat of paint and make sure your operational area is clean and professional-looking. Ensure your website is up to date and functional and your social media profiles are actively maintained.
Offer financial records for at least the last three years, or if the period included a bad year or two, show records going further back that indicate your growth over time.
Prepare projections based on real research of where the business could go if the buyer chooses to follow them, and show documentation to support your theory.
Get the Right Help
Because of the complexity of the issues surrounding a sale, you will need the help of experts in business sales, negotiation, financial planning, taxation, and law.
Working with a professional business coach from day one is one of your best assurances that you’ll actually get full value and then some for your business because they will maximize the improvement in your business in the time you have before the sale.
This will enable them to help you take what you’ve built and move it to the next level as quickly as possible.