Preparing to Sell Your Business

For many business owners who toyed with the thought of selling their business due to being burnt out, wanting to start a new chapter in their lives or retirement can easily follow these simple steps to heighten the value of their business while preparing it for sale. Some of these steps can be taken into action right away. Others can take months to years to implement properly.

To real estate buyers, it is all about location, location, location… To a business buyer, it is all about financials, financials, financials… Which is why is it imperative for a seller to improve on financial performance of the business (if it’s not operating in its prime already) and clean up books and records, especially tax returns. Buyers value strong revenue trends, high gross and net margins. Buyers will believe what is written in black & white on the tax returns. Sellers should make sure they hire a professional CPA to establish solid accounting controls, and make sure that every line item can be proven.

Diversify your customer base, products and services and create recurring revenue. Most buyers are skeptical about the customers base remaining loyal if a new buyer were to step into the picture, especially if the company for sale relies heavily on a handful of customers for revenue. A Solution to this is to establish or build a wide customer base to avoid dependency on certain customers for revenue. Just as business owners should not rely on a certain customer base, they should not rely on a few products or services as their revenue stream. Buyers are more attracted to companies with more than revenue stream, and even better when the revenue stream is continuously recurring.

Strengthening all operational systems within your company will definitely increase premium of your business. The number of high quality employees and managers increases the appeal to Buyers. However, you should not have the company depend on a key employee. A company could be severely damaged if a key employee was lost. Dilute risk by hiring more employees and get rid of employees that might be more of a nuisance to the company than an asset. All systems should also be consistent and well-documented giving buyers the confidence that will be able enjoy the same success as its current owner.

Other points to pay close attention to is securing your key suppliers obtain exclusive rights and / or build barrier to entry. Buyers love exclusivity which they see as higher and more secure profits. Look for ways to create barrier to entry whether it is legally (i.e. copyrights, patents, trademarks) or through operational systems (i.e. certain equipment use that no other competitor has, exclusive partnerships).