Do These First: Important Steps to Take Before Selling Your Small Business

As an entrepreneur and business owner, you’ve put in an extraordinary amount of work to build a successful business. You’ve endured many late nights, skipped social events, and made other sacrifices to ensure your company was on solid footing. And, your efforts have paid off, as evidenced by the profitable growth of your company.

Now, your journey has taken you to the next stage in your business’ lifecycle: your exit. You are ready to hand over the reins to someone else so they can continue to build what you have started. Time to reap the rewards of creating a great company. All that’s left to do now is sell your business and you’re ready to move on to the next exciting chapter in your life.

But how? Should you simply hang a “for sale” sign on your door and wait for a buyer to come by? (Hint:  it doesn’t generally work like that.)  Jumping in without preparing properly can end up hurting you in the long run. To ensure you are getting top dollar for your business and capitalize on the value of all of its operations and assets, it’s important to take the time to put everything in order.

Here are a few steps to take before selling your business.

Know Your Revenue and Profits

One of the factors that determine the selling price is the revenue that your business generates and how profitable that revenue is. Sustained revenue and profit are key to maximizing value for most companies – even if you have machinery and inventory.   As you make your final preparations to sell your company, take a close look at your current sales and your pipeline. Can you dedicate more resources toward new customer acquisition or other revenue-generating activities that also have healthy profits?  Bulking up your revenue only to have it limit your profitability is generally not a good idea (there are exceptions as there always are).

On the profitability side, the key pieces are understanding what your primary costs are – including which ones are required, which ones are negotiable and which ones are highly discretionary.  In addition, look at which ones are truly fixed (rent is a great example) and which ones move up and down with the revenue.  Are there areas where you are a little sloppy in costs and cost management.  Now is the time to get that cleaned up!

A word of caution:  As tempting as it is, you cannot afford to take your foot off the gas at this point. Continue to onboard new accounts, upsell existing customers, and maximize your revenue streams, as this will add value to your business and increase your selling price.  In fact, if anything, now is the time to increase your efforts here.

Value The Assets

While revenue and profits are the primary elements of determining how much your company is worth (and what it will sell for), there are other assets that can add to the value of your company.  Here are  few items to think about.

  • Raw materials, work in progress or finished goods.
  • Plant machinery, heavy equipment, computer hardware, vehicles, and leasehold improvements.
  • Intangible assets. Customer lists, relationships and referral sources, brand name or logo, patents and trademarks and developed (proprietary) software are common in this category.

Your personal knowledge of your industry, market and company can be seen as a valuable asset to a prospective buyer. This is why many business owners stay on in an advisory capacity after selling their companies.

Get a Professional Opinion

It is quite likely that your business is your most valuable asset. When it comes time to sell, it would be imprudent to rely on an educated guess of its worth.  And, while there are many resources that can help business owners estimate their company’s value, the result will be just that: an estimate – an educated guess. Entrepreneurs can research their market and compare their businesses to similar companies in an attempt to identify its approximate worth, but this will not produce an accurate value, as no two companies are exactly alike.

Working with an experienced, reputable firm that specializes in business valuations for mergers and acquisition – such as Peek Advisory Group – can help you optimize and justify the selling price of the business that you’ve worked so hard to build. An entrepreneur typically commands significantly a higher selling price when she has a complete understanding of her company’s true value.  Additionally, when you are armed with an independent, third-party valuation, you have the facts and figures you need to counter a lower offer presented by the buyer.

Selling your company is an exciting and significant event in the life of your business. With the right planning and preparation, you can know what to expect in terms of value as well as where you might need improvements if the valuation isn’t quite where you need it be yet.