Preparing a business for sale is a critical step in the process of selling your business that requires careful planning and the right strategies if you hope to maximize the sale price of your business.
A business that sells for top dollar is usually a business that has been prepared well for sale and presents an appealing acquisition for potential buyers.
Preparing your business for sale involves understanding what buyers look for and implementing key steps aimed at optimizing your company’s value.
How you position your business for sale in the market is key.
With the correct plan and preparation you can expect to get the most for your business.
This article will provide an overview of the 5 steps needed to ensure that your business is ready to sell.
1. Analyze the Financial Health of Your Business
Preparing and reviewing the business’s financial statements, income statements, balance sheets, and cash flow statements will provide insight into the financial performance of your business.
Reviewing the financial statements with your business broker and accountant will help you understand the financial performance of your business and present opportunities for improvement before you list your business for sale.
Assessing Financial Statements
When it comes to selling your business and preparing your business for sale, you and your team (business broker, accountant, bookkeeper, etc) need to have a good handle on the company financial statements.
Most buyers will want to review your financial statements and will ask for clarification of all financial information that you provide.
Accurate and current financial statements will form the basis of your business valuation and financial projections. Both of which are important to the seller of the business as well as to the buyer of the business.
This is very important to do before putting the business for sale as buyers will be looking closely at financial health when considering purchasing the business.
Income Statements
Before considering selling your business, you should first analyze its financial well-being by examining several years’ worth of Income Statements.
This information can provide valuable insights into the financial performance of the company, how it has responded to market conditions, and whether it is positioned for financial success.
It is also important to consider any recent changes or trends in financial performance that may have an impact on the sale of the business. Potential buyers will want to know financial information, so it is important to be prepared with the correct financial documents.
Buyers will want to review financial details such as the company’s financial position, profitability, and liquidity.
By preparing financial documents beforehand, you can ensure that buyers have the information they need to make an informed decision about buying the business.
With a good financial foundation in place, you will be able to maximize the value of your business when it comes time to sell.
Cash-Flow Statements
The purpose of a Cash-Flow Statement is to provide an understanding of how money flows into your business, and where money flows out of your business. As well Cash-Flow Statements provide detailed insight as to the amount of cash in and cash our of your business as well as the timing of business revenues and expenses.
Cash-Flow Statements list both cash inflows and cash outflows over a given time period, helping to identify any important financial trends.
Information provided by Cash-Flow Statements is crucial for understanding the financial position of a company and determining whether or not it is ready to enter the marketplace.
Accurate and current Financial Statements are of the utmost importance if you want potential buyers to take your company seriously, and be willing to pay top dollar for your business.
Take the time to prepare and assess your company’s financial health before your list your business for sale. Make whatever improvements are necessary to improve your company's financial position so you can make sure that it is valued as highly as possible.
2. Assess Local Market Conditions
Businesses don't sell in a bubble.
The sale price of a business is influenced by the local and regional market conditions of the business.
It’s essential to understand the current market conditions in the area. This includes researching what similar businesses have sold for, how similar businesses are performing financially, who your competitors are, and other key industry trends that could affect the current and future potential of your business.
For example, your business broker may identify that similar businesses to yours have sold in your region for a 4X multiplier of net profits. Knowing this will provide insight into where your business may be valued today, and what you may be able to do to improve your company's net profits so that you can maximize your asking price to meet or exceed the price that other businesses have sold for.
Doing this kind of research in advance can help to improve financial performance and maximize the value of your business when it comes time to sell.
3. Review Customer Relationships
Customer relationships, recurring revenue streams and supply or service contracts with customers is a valuable asset when valuing and selling a business.
Understanding how a company finds, secures and keeps a customer is important.
Buyers will want to know who your customers are, where they come from, how long you keep them on average, and how much a customer buys in a given time period.
When you understand what your customer profile looks like, you may be able to develop strategies to improve your customer metrics in advance of selling your business.
These strategies can help to strengthen relationships with existing customers and attract new ones, enhancing financial performance and helping to maximize the value of your business when it comes time to sell.
4. Assess Your Competition
You need to know who your competitors are and where you are positioned in the marketplace before you list your business for sale.
Researching competitors’ pricing models, target markets, and other strategies will help you understand the market more fully before selling a business.
For example, you may find that competitors offer better prices than your company does for the same product or service. This may or may not be a negative but you need to know how and why your business model is superior to that of your competition.
By understanding the competitive landscape, you can develop strategies to improve financial performance before selling a business.
5. Develop Your Exit Strategy
It’s important to have a plan.
Your plan should include the timing of when you would like to sell your business, how you will prepare your business for sale, the amount of proceeds that you need to receive from the sale of your business and what systems and infrastructure you can build into your business to ensure long-term success.
This can include developing systems and procedures to ensure continuity of operations and finding a management team to take over the business.
Having an exit strategy in place will make it much easier to sell the business and ensure that operations remain smooth during and after the transition.
A business broker can help you prepare a sound and practical exit strategy.
Summary
Preparing a business for sale requires careful planning and strategic decision-making.
We recommend no less than taking the above steps at least a year before you list your business for sale. And if you can plan 2 or 3 years in advance that's even better.
By taking the necessary steps to prepare for sale beforehand, you can maximize financial performance and ensure a successful outcome.
With the right planning and preparation, you’ll be ready to make the most out of your business when it’s time to sell.
To get help Preparing Your Business for Sale Contact: Stonebridge Business Brokers of BC
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