4 Steps to Get Your Business Ready to Sell.
If you own a business, chances are that one day you will be faced with the decision to sell your business.
The decision to sell your business may arise from an unexpected buyer contacting you to ask if you would be interested in selling your business. Or, you may be approaching an age where thoughts of retirement have you considering if the timing is right to sell your business.
No matter the reasons you may have for selling your business, the steps required to successfully sell a business are largely the same.
Here are 4 Steps you need to take if you would like to sell your business. And what you must do to sell your business for the highest price.
Step 1 - THINK LIKE A BUYER
Much of what information that follows is based on the foundation that if a seller wants to sell their business, than they must think like a buyer.
A common mistake that business owners make when the time comes to sell their business is to think that they are doing the buyer a favour by selling their business.
Or a seller will disregard the many questions or concerns that buyers will almost always bring into business sale negotiations.
When a business owner does not think like a buyer, BEFORE they list their business for sale, the odds of selling your business are less.
If you want a buyer to buy your business, than you need to think how a buyer thinks.
You need to look at your business through the eyes of someone that may not know or understand the history of your business, it's operations, it's financial performance, or it's future.
When you think like a buyer, you need to look at both the positive elements of your business (and promote those), as well as the negative parts of your business (and fix those).
As the seller, you need to accept and expect that the buyer is going to have questions. And you need to either eliminate the questions before hand, or have a comprehensive information package ready to present to a buyers that will address nearly every foreseeable question on concern.
When you start the business selling process with the mindset of a buyer, you have just overcome one of the most common obstacles business owners encounter when they decide to sell their business.
Step 2 - OBTAIN A FAIR MARKET VALUATION OF YOUR BUSINESS
Nothing prevents a business from selling like an inaccurate business valuation.
Let me say that again, there is no other single reason that prevents a business from receiving offers, or selling, than a asking price that is not directly reflective of the businesses past financial performance and the market conditions in which a business operates,
To find our more about business valuations click HERE.
If you hope to sell your business, you need to start at an asking price that represents a Fair Market Value (FMV) range for your business.
And the only way to do this is to retain the services of a professional business broker who has experience valuing and selling businesses in your area.
It is fine to start at the higher Fair Market Value range if your business has the financial metrics to support that position.
But you need to be in the ballpark.
If your asking price is too high, buyers won't even bother submitting an Offer to Purchase, or begin due diligence if they believe that the asking price is unreasonable.
A buyer will think that if the asking price is unreasonable, than the seller must be unreasonable too. And no one wants to negotiate with unreasonable people.
So to make your business attractive to buyers, you need to get an accurate valuation of your business so that you can attract interest and offers in your business.
The other note here is that just because you listed your business for less than you wanted to, or the business valuation came in lower than expected, doesn't mean that you will have to sell your business for less than you wanted to.
A skilled business broker will still be able to negotiate a high selling price for your business because the asking price is reasonable and defensible. And there is no reason to concede large discounts on the sale price of your business.
Step 3 - GET YOUR FINANCIALS IN ORDER
Second only to inaccurate business valuations killing a business sale, is that weak financials, or sloppy financials ruin a business sale.
A buyer may be interested in your business at first glance, but if a buyer is presented with financials that show limited profitability, or the financials are not current or organized than trust will be broken with the buyer.
If your financials create uncertainty or suspicion in the mind of the buyer, it is almost always impossible to build that trust back.
So before you ever list your business for sale, you need to get your financial house in order.
This means that you need to have the last 3 years of financial statements from your accountant ready to present to a buyer.
In addition, you will need the current Year-to-Date financials that include a Balance Sheet, Income Statement (Profit & Loss), Cash-Flow Statement, and an up to date record of inventory and equipment.
Your accountant and business broker can help with this information.
You don't need to be an expert on your finances or financial statements but you need to have that information well-documented and available because any discerning buyer (and most buyers are) will ask to see your financials.
When reviewing your financials with your accountant and business broker, you should discuss any areas of your business that are not driving revenue and profits.
Non-profitable products or services need to be discontinued.
Having a non-profitable product or service is like having a rotten apple in an otherwise healthy and edible basket of apples.
One bad apple spoils the bunch. And the same is true for selling a business.
One bad product or service that is bleeding cash or not creating revenue will create questions in the mind of a buyer like:
"Does this business owner know what he/she is doing?"
or
"Why are they hanging on to that product or service when it's not making any money?"
Getting your business finances in order gives you a clear understanding of where your business is at.
It will also help your business broker understand your financial metrics so an accurate business value can be determined.
And most importantly, sound and up-to-date financials give a buyer confidence that a business is well-managed.
Step 4 - LIMIT YOUR SPENDING
Many business owners enjoy fringe or discretionary benefits by owning a business.
These benefits can include phones or fuel cards for the owner and their family, entertainment, health and insurance benefits, vacations and other non-essential items.
While these perks are nice, the accumulated cost of owner perks can adversely affect a company's bottom line.
If want to get your business in the best position to sell, than eliminating or limiting owner discretionary spending is a quick and easy way to improve the bottom line performance of your business.
In addition, spending should also be closely monitored in the area of inventory and equipment.
Inventory and capital expenses require cash, and the less cash in your business, the less attractive it will be to a buyer on average.
In most business sales, inventory is addressed outside of the sale price.
At best you will get landed wholesale cost for your inventory and often you will receive only a percentage of inventory wholesale value less an adjustment for 'dead' stock.
So by keeping inventory levels at a minimum you are keeping more money in your business and lowering your risk of not getting paid for all of your inventory when your business sells.
Equipment purchases are similar.
If you don't absolutely need a piece of equipment or a capital asset, than don't buy it.
Leave the cash in your company, and let a buyer decide if they want to buy more equipment after they buy your business.
Additional equipment and inventory means a higher asking price. So keep both expenses in check before you list your business for sale.
CLOSING THOUGHTS
When the time comes to sell your business, you're likely to have questions about how to sell your business.
You not only want to sell your business, you want to sell your business for the highest price and in the least amount of time.
Buyers want to see a well-managed and fiscally responsible business.
To present your business for sale in the best possible way, you need to:
- Get an Accurate and Professional Business Valuation
- Have your Financials in Order
- Limit All Types of Unnecessary Spending
And most importantly, when getting your business ready to sell, you need to...
THINK LIKE A BUYER.
If you are thinking about selling your business, or want to know how to sell your business, contact the experts at selling your business:
Call: 604-866-2236
Web: businessbrokerbc.ca
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