Preparing your business for sale

It’s important to start planning the sale of your business as early as possible. Businesses are usually sold if the price is right, so be ready in case you need to sell unexpectedly, or a buyer presents themselves when you least expect it.

Business owners often think about selling during a downward trend though the best time to sell is when your business is in good shape. If you plan ahead, you’ll be ready when the time comes.

When planning, decide whether you’ll continue to help the business through its transition. If you need to sell by a certain date or for a minimum price, work towards that.

Improve business health

Make sure your business has:

  • Tidy financial records
  • Optimal levels of staff and inventory
  • Tightened control over debtors
  • No legal issues on the horizon
  • Fixed assets (like equipment and vehicles) work well without needing to be replaced in the near future.

Potential buyers might feel locked into a direction they don’t want to take if you’ve invested in long term projects. Cut back to short term spending to reduce the financial burden on whoever acquires your business. Be realistic when providing for bad debt, old stock and depreciation amounts.

If a potential buyer asks for more information, make it available quickly and ensure it’s accurate. Demonstrating how sharp your internal processes are will show buyers that your business is functioning efficiently.

If you run a service business, speak to your most valued customers concerning what they want improved and what they treasure most about your business. Assuming you already know would be a mistake. Use this information to enhance all aspects of service to your customers. Keeping them content may be a useful negotiating tool with potential buyers.

Create an action plan for any weaknesses in your business that you intend to rectify. Outline the steps you’ll take, timeline you’ll follow, resources you’ll commit, and then assign tasks to gain improvements before advertising your business for sale.

Make sure legal requirements are up to date

Go over any permits, leases and contracts that will influence the future of the business. Buyers won’t want to inherit legal problems so do your best to resolve any outstanding legal issues. Be transparent about any concerns potential buyers have to earn their trust.

Put yourself in the buyer’s shoes

When preparing to sell your business it’s a great idea to consider things from the buyer’s point of view. In other words, what would you look for if you were the buyer?

One question a buyer might ask is your reason for selling. You should have an honest response that doesn’t suggest the need for urgency.

Make a good first impression when buyers come to view your business. Your premises should be immaculate and orderly, with friendly staff and lively activity. This will leave a positive impression on any buyer.

Buyers prefer low risk with high reward when they consider investing in small business. Ultimately, buyers will look for good cash flow and solid systems with the potential for further growth. They want to make money so get your financial position in excellent shape.

What the buyer wants to know

Go Buyers need accurate and complete information to make an informed decision on whether your business is suitable for them. You can help this process by understanding who your potential buyer is, and what they may want to know about your business.

Questions that buyers may ask include:

  • What makes your business unique?
  • How profitable is your business in both good and bad times?
  • What has been the annual increase in sales?
  • Will you remain with the business in a temporary role to support a smooth transition?
  • What are the levels of stock and investment required in the foreseeable future?

It’s likely that potential buyers will want to view at least three years of financial statements, including income statements and balance sheets. They’ll be buying into your business’s profitability so you’ll need to identify any non-operating expenses, such as interest.

Buyers will be aware that there’s a risk of customers leaving after you sell. You’ll need to reassure them that your customers are loyal to the business rather than to you.

Get advice

It’s essential to get expert advice from your lawyer, accountant and broker.

When preparing to sell your business, talk to your lawyer. They can protect any trade secrets by writing up a confidentiality agreement which will help safeguard your intellectual property.

An accountant can ensure your financial records are organized while also helping to accurately calculate the goodwill that’s been generated over time.

Hiring a broker will assist in smooth negotiations with prospective buyers, can help keep your identity confidential so suppliers and customers don’t get concerned, and will allow you to focus on running your business while they look for buyers.

Ask your experts to mention any weaknesses they see in your business. Do your own due diligence before offering your business for sale and address any problems.

Summary

After improving your business’s health, fixing any glaring problems and legal issues, and preparing the necessary information for prospective buyers, research what similar businesses are selling for to find an appropriate price.

Next steps

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