Preparing your business is not something that should be entered into mere months before the deal is done. In fact, you should be thinking about the saleability of your business from day one of its existence.
Every broker knows the easiest businesses to sell are the ones with transparent assets: a healthy customer base, a clear and documented accounts history, efficient processes, good profit margins and projected figures, no debts...and no skeletons in the closet!
These are attributes that take the whole life-span of a business to acquire, however as you approach the time to sell your business, you will need to sharpen your focus. Here are a few guidelines for when the time comes:
Decide on a sale date
Having a date in mind for the sale of your business will not only increase your motivation, but will also give you a workable timescale for preparing your business for sale.
Generally the process of selling your business will take at least a year, while specific planning will take around six months before that.
Try not to wait until you can no longer manage the operations of your business. Buyers will often take advantage of sellers who have been forced to sell under difficult circumstances - be they old age, illness or financial difficulty.
Be sure of what you are selling
When selling a business, you are not just offering up the physical inventory and space. Your business' history of profitability, competitive advantage, customer base, growth opportunities, brand loyalty, intellectual property rights, licenses and issued patents are all valuable in the eyes of a potential buyer.
If your business is incorporated, you'll need to decide whether to sell your business as an asset sale or a share sale. The difference is that the incorporated company is included in a share sale.
Analyse financials
Evaluate expenses and cut out any that you feel are unnecessary to make sure your business looks as healthy as possible. You can also prune essential expenses which will, in turn, increase the efficiency of your business.
Take care to remember that prospective buyers will be looking at the potential of the company, rather than simply its current profitability. Therefore they will also be analysing the movement of your figures to see whether they're increasing or decreasing year-on-year.
Providing an audit for your business' profit history over the past few years will help build trust and confidence in your buyer.
Make sure that your business can run efficiently without you
At the end of the day, prospective buyers will be looking to buy the business, not you. They will want to take up the baton quickly and smoothly so it is essential that you can show that the business can run well without your specific input.
This means having a strong team, clear and efficient business procedures, good lines of communication between existing staff and with customers, successful marketing strategies and a solid business model that can accommodate a new owner.
CRM system: is it in good shape?
Having a reliable CRM system is not only valuable but essential for a service business, so it's definitely worth investing in a system customised to the specific needs of your enterprise.
This way, when you come to sell, you will be able to show potential buyers the communication you've had with clients, notes, unique personal information and invoices within different reports. A tailored CRM system will ultimately boost efficiency, provide extra value to your business and facilitate a smooth transfer.
Renew and strengthen contracts
Outdated contracts can cause some serious headaches for a new owner. Furthermore, if there is the possibility that these contracts will wear down during the ownership changeover, your buyer will be less sure about future revenue flow and the business' value may decrease.
All contracts should be revised, with effort made to strengthen or renew them.
Conduct your own due diligence
Due diligence is a nerve-wracking process for sellers. If it all goes wrong at this stage, the buyer will either pull out or ask you to reduce your price tag. However there is one way to avoid this - conduct your own due diligence prior to going on the market.
This way you will be fully aware of any issues (be they financial or systemic) within the business and resolve them with directives from your advisors. Then, when you do get into the final stages of your sale, you will feel more confident when your buyer conducts their own due diligence checks.
Selling a business is never easy, but careful preparation and foresight will make it a much easier ride and will optimise your end reward. Good luck!
By Rose Hill, online journalist for BusinessesForSale.com, the market-leading directory of business opportunities from Dynamis. Rose writes for all titles in the Dynamis stable including PropertySales.com and FranchiseSales.com.