If you have finally made the difficult decision to sell your business, it’s time to get down to work to prepare it for sale. Most business owners are in a rush to get done with the sale. However, this lack of preparation can hurt the valuation and deny you good value.
After so much hard work to build the enterprise, you deserve the best value out of this investment. A good exit plan can last months or years to guarantee a smooth sale and the best price. Estimates show that it can take 1 to 2 years to prepare a business for sale fully.
Poor planning can have devastating consequences for your investment. Many entrepreneurs take suboptimal sale price and sell their companies in unfavorable conditions due to lack of preparation. Without a good exit plan, you can lose your business if you have to sell in a hurry, yet there are no buyers.
Our advice to business owners or shareholders seeking to sell their companies is to create a comprehensive exit strategy. We help business owners craft a detailed plan for a smooth exit and most value for their enterprises. Planning your exit early removes the hassle from the process and helps make the business attractive to buyers.
Here are some of the steps we recommend for our clients to get the most out of the business sale.
1. Business Valuation
Valuation of a company is among the first steps the owners should do. It gives the seller a realistic and objective view of how much the business is worth. Working with an experienced broker is critical to get the best assessment.
These professionals have the right tools and understand how to do a business valuation using different methods. Some of the methods used include:
- Market value business valuation formula
- Multiple of earnings valuation method
- Book value method
- Capitalization of earnings valuation method
- The asset-based business valuation method
- The discounted cash flow (DCF) valuation method
- Liquidation value asset-based approach
- The ROI-based business valuation method
These business valuation methods are preferable in different scenarios. Your broker determines which is best for your company. With a valuation, you can start gauging buyer offers and know what to expect from the sale.
2. Prepare Your Paperwork
When selling a business, the first thing buyers want to look at it the paperwork. Your business broker also wants to have a look at the paperwork for the valuation. Some of the records you should have in place include:
- Operation documents: Prepare the business plan and history, stock inventory lists, supplier details, strategy plan, marketing plans, procedure and process documents, and other important documents.
- Financial records: Buyers want to see profit and loss statements, tax returns, and list of assets, Current balance sheet, Cash flow statement, forecast financials, bank loans, and an outgoing cost breakdown.
- Legal documents: These include employee contracts, franchise agreements, health and safety guidelines, and leases.
- Commercial records: Copy of the current lease, insurance policies, professional certificates, supplier accounts, and registration papers.
- Non-disclosure/confidentiality agreement
- Executive summary of an overview of the business
Preparing these documents and updating them is not easy, and you need professional expertise for this. It is part of the exit planning that our team helps clients with. We help you prepare all these documents to make the best first impression.
3. Prepare a Growth Plan
One of the key value drivers when selling a business is the growth potential. Buyers aren’t interested in the past or the present state of your business but the future. One tactic in preparing the business sale is to help buyers see value in your venture.
Draw a roadmap to opportunities the buyer could explore with more investment. We help you provide a picture of potential growth opportunities achievable through more capital injection. If you already have a marketing structure that consistently delivers results, assures the buyer of the viability of the venture.
4. Showcase the Value
Closely related with the growth opportunity is the value of your business. Take time to figure out and demonstrate the real value you’ve built into the business. The idea is to show the buyer why they should take the risk with your company.
You have to show the buyer that this is a solid investment. The buyer wants to see what they’re getting for their money. Now that you know your enterprise best prepare as much information for buyers as possible. This information highlights the attractiveness of your company. It also illustrates the value of any potential new owners.
5. Establish Advisor Relationships Early
Trying to control the sale process is the biggest blunder an entrepreneur can make. While you hold this investment close to heart, this is the time to let go and let professionals do the job. The exit process requires a unique skill set and relevant M&A experience.
For a smooth exit and best value, establish a relationship with your broker early enough. Early consultations allow the advisor to learn as much as they can about your business. With this insight and knowledge, your advisor can craft the best exit plan for your business.
6. Tackle the Operations
One of the things buyers look for in a new business is continuity. Can the company continue running after your exit? Prepare your business for the transition by investing in a skilled team of professionals. Develop a good management structure in the 1st and 2nd tiers to ensure the company runs smoothly.
Other operational considerations include streamlining the products/services and an effective marketing and sales process. A detailed operational control procedures manual is also valuable to the buyer.
7. Diversity the Customer Base
A good business shouldn’t rely on a single customer account. This is a risky position for your company to be in, and it can put off buyers. When preparing the business sale, invest in customer base expansion through targeted marketing.
These are a few of the tasks we undertake when preparing your business for sale. We develop custom exit strategies to suit unique clients’ needs. If you are thinking of selling your company, get in touch today and let’s work to draw the best exit plan.