The time has come – you’re ready to sell the business you’ve built over the course of years or decades. Every business owner has their own reasons for selling. You may be ready to retire or move to another city. You may simply be looking for a new challenge or venture. Your sales may be down and your business may need new capital or management to continue competing.
Whatever the reason, selling a business involves more than simply putting up a “for sale” sign on the front window. Preparing for a business sale with a winning strategy will net you better-qualified buyers and a significantly more profitable transaction.
With the right steps, you could get the best possible value for your business, one that reflects all the hard work you’ve invested into growing your company.
How Do You Prepare Your Business for Sale?
First, you’ll want to get a business lawyer involved as soon as possible. You should never go into a business purchase transaction without legal representation. A business attorney can help you not just execute the sales agreement, but also position your company in a way that makes it more appealing to potential buyers. The sooner you get started with counsel, the better.
Your reasons for selling your business will play a big role in shaping your business purchase transaction. After all, one of the first questions an informed buyer will ask is why you’re selling. The negotiations will proceed differently if you’re selling because your company is losing revenue versus selling a profitable company from which you’re retiring.
Second, you should determine what would be a successful outcome from the business sale. Is your goal to sell above a certain price, stay on board as a consultant, ensure your company maintains its original vision, or protect the jobs of your employees? Your lawyer can help you establish baselines for success then target those goals in your strategy.
When Should You Sell Your Business?Theoretically, you can sell your business immediately – as soon as you make the decision that you want to sell. But if you sell right away without getting your company’s affairs in order first, you could be leaving a lot of value on the table.
Think about selling a business similar to selling a home. According to a study by the National Association of Realtors, homes that are staged to be attractive to buyers sell faster and for more money than those that are not staged. The same goes for businesses.
By taking the time to prepare your business for sale, you can address and overcome your company’s weaknesses to make it as attractive as possible to prospective buyers. This could take just a few months or more, depending on what types of adjustments are needed. The difference could mean hundreds of thousands or even millions of dollars.
You can also time the sale of your business with other opportunities in your industry. For whatever reason, your industry may be booming – that could be a high-value time to sell. Conversely, if you’re still profiting in an “endangered industry” that’s shrinking in demand or value, you may want to sell sooner rather than later.
Your attorney can help put together an action plan for selling your business that takes into consideration your personal motivations, time limits, and sales goals.
Preparing Your Business for Sale Checklist
Every business is different and yours will benefit from a tailored approach. Your lawyer can help you get through the steps below to set your business sale up for maximum success.
- Identify your company’s weak points and areas for improvement. Does your business have any pending litigation or court cases? Are all of your business licenses up to date? Do you have any zoning issues? Are all of your taxes and debts currently paid? Do you have trademarks and other IP protections in place? What do your revenue and cash flow look like? Do you have any staffing shortages?
- Determine the cost-benefit of addressing these weak points. Is the problem affecting an integral part of your business success, or can it be disregarded without affecting your company’s performance? Is the condition important enough that it will lessen a buyer’s interest or the price they’re willing to pay? Is the cost of addressing the problem less than the effect of the weakness on the sales price? Can your company actually implement the necessary changes in a reasonable time before the sale?
- Commit to a pre-sale action plan to improve the weak points you choose to address. Determine the exact steps you’ll take to strengthen each area, the timeline for making changes, how much investment and resources the improvements will take, and what duties will be assigned in order to execute the plan. You want to develop your business to maximize sales and profits. You may want to keep your plans to sell the company on the down-low, as rumors of a sale could rattle employees or customers.
- Record metrics of success that show your company’s performance. Many industries have industry-specific metrics that determine how well your company is operating. You can also show projections for success under different scenarios, especially if you’re looking for investors to infuse the company with new capital. This may involve creating a pitch deck to present to potential buyers.
- Get your company’s financial documents and operations in order. The healthier your business finances and operations, the more attractive your company will be to a buyer. If you’ve got an airtight, automated invoicing and customer management system that ensures you get paid on time, that means much less hassle, uncertainty, and risk for the buyer. If your accounting system involves filing cabinets filled with loose receipts, that’s not nearly as encouraging. Make sure you have an accurate organizational chart along with all the proper contracts and agreements between your company and its customers, vendors, employees, partners, and banks.
- Do your due diligence. Your lawyer can help you bring on expert appraisers to evaluate the value of your business, brand, and assets. You can strengthen your position by presenting market research or statistics that support your company’s success.
The process doesn’t have to be overwhelming, especially with a capable business lawyer as your advisor. Once you find the right buyer for your business, your attorney can make sure you have all the proper documentation to complete a successful sale.
To get your business positioned for its best chance at success, call the Philadelphia offices of Holmes Business Law at 215-482-0285 or use our contact form to get started now.