Selling your business is in many ways similar to selling your house. The first thing you do before selling your house is fix it up – give it a new paint job, repair any damage, improve the curb appeal, etc. Well, if you want to make your business more attractive to buyers and maximize the price on the sale of the business, you need to do the same thing – make some improvements.
The sale of a business first starts with planning, usually months, and even years, in advance of the actual sale. Every situation is different but a sale, and getting ready for that sale, can take up to five years depending upon the state of the business and the owner’s needs. There are a number of steps in the process and if you are in a hurry, you may not maximize the return. So, here’s where to start:
Think Like a Buyer
You need to put yourself in the place of the buyer and ask yourself what the risks and “flaws” in the business are. What can you do to “fix” them? Buyers will undertake due diligence prior to closing a deal to identify any problems with the business. Home buyers often hire home inspectors to identify potential problems before closing the deal and use major issues to either negotiate a reduced price or walk away from the transaction. You want to fix any problems before the business goes up for sale so the buyer can’t use any negatives as a negotiating tool.
Know Your Earnings
Business valuations are generally based on earnings – the greater the earnings, the higher the value. Companies with a track record of growing earnings are more valuable than companies with volatile earnings or losses. Buyers will look at the earnings for the last three to five years. Can you show a history of growth? If not, why not and what can you do to improve the pattern of earnings?
Evaluate for Strengths and Weaknesses
What are the risk factors in your specific business – industry conditions, growth opportunities, operational issues, customer concerns, etc. Can you improve productivity? Does the business rely on a few customers? Can you expand the customer base? Be prepared to have the answers.
Identify your Key Players
Selling a business isn’t just about bricks and mortar, it’s also about the people. How strong is your management team? Are you the key driver of the business or do your managers make significant contributions to the company’s success? Buyers generally want depth in the management ranks. Reliance on an owner who just won the jackpot does not lead to a lot of certainty. There needs to be a solid foundation for future success in order for a potential buyer to make the investment.
Be Objective
You need to do an impartial evaluation of your business. As an owner, you are proud of what you have built and often have a personal and emotional attachment to your company. You may not be able to “see the forest for the trees”. You may want to consider hiring an independent advisor to assist you. Often, the advisor can help you make improvements that more than pay for themselves in an increased selling price.
To use the house sale analogy, you may hire painters, landscapers, carpenters, plumbers, or electricians to fix the house. In addition, when you present your home for sale, you may hire a stager to help present the home in the best possible light. All so that you maximize the selling price of the house.
An advisor can do the same things to help you fix your business and maximize the selling price by helping to develop a plan in advance of the sale including:
- Identify and implement productivity improvements
- Help you grow sales
- Develop an independent SWOT and help with opportunities and address threats
- Provide a strategic evaluation of your organization – structure and personnel
If you need a professional opinion, contact us. Happy selling!
By Morris Slemko