03 May Top 5 Prep Steps To Sell Your Business
Realistically speaking, selling a business is a difficult step but sometimes, it’s time to retire, or change vocations or do something for yourself. There is both good and bad news for you if you’re ready to sell. The bad news? If you choose to sell right away, you most likely will not get full valuable for the business, because it takes a good year of preparation to sell before you actually put your company on the market.
The good? A lot of businesses have changed hands in the past several years and there is a fair amount of money sitting on the sidelines looking for good deals. Also! If you actually take the time to prepare your business for sale, you’ll more likely jump to the top of a buyer’s short list, simply because most sellers don’t do the proper prep work to make the sales process easy and transparent.
The top 5 tips to prep? Here they are!
1. Sell your business the way you’d sell a house. Consider the sale of a house and what it entails. Put the same effort into the business. Most people wouldn’t let people tour their home without making some cosmetic changes and cleaning up before offering it for sale. You’ll want to have great financials, so keep your paperwork up-to-date and document every small detail. Outline each and every responsibility of each member’s job and include key performance indicators that clearly establish what is expected of each player and group. Getting your house in order over the next 12 months is vital, things like giving your business a fresh coat of paint and getting it tidied up.
2. Start your game plan. This is where you come straight to Aldrin… just joking, maybe. Seek out and meet two or three business brokers in your area, as the majority of deals come through brokers. A good business broker is invaluable to the sales process and it is the cleanest option for a clean sale. The best brokers do more than justify their fees and can both guide and counsel you through the sales and marketing procedures.
In your very first discussion, you’ll understand better of who your potential buyers will be and how to position business in the ideal way to get the most valuable in the current marketplace. You will also discover soon there are two types of buyers. The ones who love fixer-uppers and those looking to buy themselves a job. Ideally, you’ll be searching for an investor who is looking for a business to take to the next level and who can work with the current team and systems.
Pro Tip: Most buyers are often willing to pay more for a business that already has effective systems in place.
3. Learn valuations for your industry or category. Using a broker offers another advantage to you: solid information about the valuation models buyers will use for your business in your particular industry. Different industries use different multiples. Some use multiples of profit, some revenues and others cash flow. You can get a pretty good idea on what the numbers for your business are simply by talking to a number of brokers getting some benchmark metrics.
Having a database is the biggest asset you can have, although you may be in a business where stock and inventory levels will figure into the equation as well. Learning what you need to focus on will give you an edge and the appropriate confidence in putting together a solid informational and sales package for prospective buyers.
4. Plan your information and sales kits. A broker will guide you in putting the materials together into one big information and sales package that includes samples of all your marketing materials, an overview of your financials, positional contracts for your team and any of your management. Included in this will also be an overview of the inventory and assets, equipment and any physical components of your operations. Buyers need to access this information as part of their own due diligence and the more information you provide, the better and the smoother the sales process will be.
Don’t be overly worried with disclosing proprietary information that would need to be covered by non-disclosure agreements or non-competes. The objective of what is essentially a sales package is to present your company in the best possible light to attract the right kind of buyer for your business.
5. Prep your team. The hard part. Finally, speak with your team and create and implement a good communications plan with your team and management about your goals and objectives, your desired outcome and the reason for selling the business. You might also want to seek outside guidance on this process as well. Communicating a sale can be a tricky balance. Under-communicate and you could create panic in the business, over-communicate and you can still have the same result of panic.
Your plan should include more than theme or strategy, it should include technical details on how passwords and transfers of phone numbers will take place. These details might seem small but they are the types of items that can cause undue stress or worry as the process of transition comes to a close.
Pro Tip: Be sure you also meet with your accountant or lawyer to make sure what kind of sale is right for you so you don’t pay more taxes than you need to as a result of the sale.
Patience here is ideal. Realizing and understanding that the sales process is rarely flawless, that one of three deals fall through in the due-diligence portion of the process or that some people just get cold feet will help the process along.
The prep work seems exhausting and worrisome. A little daunting, even. Just consider that the prep work will position your business better and help ease the sales process. Feel free to reach out to Aldrin to learn more about selling your business.