Preparing Your Small Business for Sale

For entrepreneurs, there comes a time when they prepare for a new chapter in their lives and transition out of their companies. For some, their exit strategies have been in place since the beginning; for others, it comes as their goals change or they head toward retirement. Whatever your reason, it’s always a good idea to take a close look at your company to ensure it’s in tip-top shape and “sale-ready.”

via @adiruch

In a previous article, we discussed key financial considerations related to selling a business. Now, let’s delve into other critical areas of your operation to help position your company as an attractive acquisition target.

Know What You’re Selling

Before you begin seeking a buyer, it’s important that you have a clear idea of what you are actually selling, what you will be keeping, and what you want from the deal. What intellectual property or other assets will you retain? Is the real estate associated with the business included in the sale? Are there other entities affiliated with your company that you want to separate from the main business?

Be clear on what is included and what isn’t. Withdrawing a key component of the business while undergoing negotiations will surely impact the selling price and may drive buyers away.

Remove Obstacles

Prospective buyers want businesses that aren’t saddled with unresolved issues. Before you begin the process of selling your company, make sure it is healthy and free of major problems. Even though your business may be profitable, challenges like pending litigation, environmental issues, regulatory infractions, or significant debt will be nonstarters for many.

It’s important to be aware of your vulnerabilities. If there are problems that cannot be rectified before the sale of your business, be prepared to acknowledge the issues and formulate a plan to manage the impact it may have on negotiations.

Make Yourself Expendable

When was the last time you took a vacation? Can your business function without you there? When you do take time off, are you still checking in to troubleshoot problems or support your staff? If your business can’t run effectively without you now, it won’t be an attractive, cost-effective purchase for someone else.

Take a step back and figure out what is needed so that your company can operate in your absence. Make sure all systems and processes are clearly documented so that someone new can step in and follow the roadmap. If you are too integral to your company’s success, you may be lowering its overall value or making it difficult for a new owner to achieve a smooth transition.

Keep Momentum Going

You may be planning your exit, but don’t overlook the day-to-day operations of your business. You can rest once the sale is completed and the new owner takes the reigns. Continue to generate new business, service your customers, and manage the company’s day-to-day operations with the same intensity as you always have. If the sale of your company is imminent, take the time to tie up loose ends. Make sure the new owner can hit the ground running on day one.

Prepare a Plan of Transition

If you are contracted to remain with the company for any length of time following the sale, then you will be on hand to ensure that a smooth transition can occur. If not, prepare a comprehensive document that will guide the new owner.

Your document should include:

  • Background of major clients: Provide a detailed description of each client, which includes all relevant contacts, the account history, client preferences, previous challenges and resolutions, and all relevant notes to ensure the new owner can maintain the relationship.
  • Lists of all vendors: Provide information regarding existing contracts and verbal agreements, relationship history, and vendor capabilities.
  • Employee Notes: Include an overview of each employee’s strengths, areas that need improvement, their history with the company, and personal notes that could help the new owner bond with your workforce.

Work with a Partner

Because of the complexities involved in selling a business, it’s important to enlist the help of experienced professionals to help you prepare and ensure you are getting top dollar for your company. At Peek Advisory Group, we have guided numerous business owners like you through all phases of the sale process, including financial analysis, pre-sale financial systems, and business valuations.