The past few years have seen an increase in small to middle-sized business sales. The economic forecast suggests that this trend will continue. If you are considering a business sale, it’s vital to understand the selling process and prepare your business for the contemplated sale well before you try to put your business on the market. The following six tips will help you get started.
- Looks do matter. When it comes to a business sale, there are many aspects that are similar to a sale of a home. Most homeowners wouldn’t put their house on the market until their house is in its best marketable condition. This holds true for a business sale as well. Take the time to update your business’s physical appearance. If you were considering cosmetic renovations or updates, now is the time. Organize your files, clean your offices, and update your business systems, policies, and procedures. However, don’t make significant investments in the new equipment, facilities, or computer systems. Your investments may not be appreciated or needed by the new buyers. Such investments would only cause tension between the parties as you may not be able to realize the full value of your investment of time and money.
- Don’t go it alone. Just as you most likely wouldn’t list your home alone or sign papers without legal counsel. Selling a business requires professionals and experienced team. Enlist the help of qualified professionals as soon as you decide on a sale of your business. Seek an advice of a business lawyer who would be able to help you to structure your contemplated transaction, an accountant would be able to help you to minimize your tax liability, and a good business broker would be able to help you to organize your business documents in a data room, determine reasonable price, create marketing strategy, and to facilitate the contemplated transaction.
- Keep growing. It’s essential in any proposed business sale to show not only profitability, but also growth. Potential buyers not only want to see the current profits being made, but also how these profits have grown over time. Projected growth of the business is the vital information for potential buyers. Just because you’ve decided to sell, it is not the time to let up on growing your business. This is also a great time to look for ways to cut costs and excesses to increase profits.
- Recurring revenue. In any business sale, the new owners need time to take over the business and get familiar with its practices and business opportunities. Steady streams of recurring income are attractive to the potential buyers as they allow them to adjust to their new company while still bringing in money. So, this is a critical time to find and nurture client accounts who bring the recurring streams of income to boost your business’s appeal to potential clients.
- Streamline processes. Like any new job, when it comes to a business sale, there is a learning curve. When you’ve been doing things for years you can almost do many tasks “with your eyes closed.” This won’t be the case for the new owner. To increase your potential buyer pool, be sure to tighten-up processes and procedures so the new owners can easily take over the reins. This assures potential buyers that once you’re gone, they can run the business without too many unexpected glitches.
- Employees. A change of ownership is stressful time for the business and may cause employees to look elsewhere. A change in ownership also causes undue stress in employee relationships and create challenges for the new owners. Therefore, it’s of utmost importance to plan for the transition with the key employees and provide assurances to employee that the new owners would not make drastic changes in their compensation or responsibilities. Offer incentives to keep them and be sure potential buyers are aware that these valuable employees will be there post-closing.