The current state of the global economy, impending baby boom phenomenon, plus the geopolitical instability, is creating uncertainty for business owners considering selling their business. Since, timing is always a challenge, strategies for the sale of your business should take all theses variables into account when deciding on the time to transition.
However, even if you’re not considering selling your business at some point in the near future, it’s important to get it into shape to reap the maximum return on your investment. Here are five recommendations that will enhance your business and may even lead to higher sales and profitability to strengthen the business, which add up to increasing your odds that the business will be sold.
Clean up the balance sheet and the P&L before Selling
Unfortunately, too many business owners keep poorly documented financial records, which invariably spook many buyers, especially sophisticated buyers, such as private equity firms or corporate strategic buyers. These types of buyers always want proof of profitability and actual or potential growth prospects, which can only be shown with clean income statements and balance sheets.
One sure way to guarantee squeaky-clean books is to audit the financials for at least three years, which could be costly, but makes a business much more attractive and the cost is easily recovered when you sell. Honestly, this tactic is worth its weight in gold, as nothing turns a prospective buyer off more than sloppy bookkeeping. It’s the best investment you’ll ever make as a business owner.
Even if you’re not planning to sell your business very soon, it’s never a good idea to procrastinate. Put your financials in order, as time is of essence and being prepared is going to pay off in the long run. Unfortunately, many small-business owners have to sell their business unexpectedly due to health problems, accidents or a family member who need care, or other non-planned life events. Don’t get caught out, act today.
Don’t make yourself indispensible
Small business owners are entrepreneurs, and driven by ambition. More often than not, most owners will want to control all elements of their business, and rarely if ever delicate tasks, which they personally feel they can do better themselves.
However, any business that relies heavily on the business owner making all the operational decisions runs the risk of impacting the value of their business and thereby reducing the probability of a sale to a qualified buyer.
It is a known fact, if your business is less reliant on your efforts; you are likely to obtain a higher selling price. The more the operation is automated, the greater likelihood you’re going to garner a higher price. Automating almost every aspect of your business, from order processing to delivering customer service can add both value and increase the probability of an early sale.
It’s important that every aspect of the business is documented, as that helps to “tangibilize” the business making it easier to understand and therefore sell. Document all procedures and keep meticulous records, as this will pay dividends in the long run. You want everything to be written down in a process, as this shows order and efficiency in the mind of the buyer. Do nothing that could make a potential buyer become suspicious of your motives, which is the death knell of a deal.
Know your business value
Few business owners ever keep track of the value of their business, although this should be fairly high on their list of important tasks. Perhaps understandably, a typical business owner is so preoccupied dealing with the day-to-day business, they have precious time to spare on something as intractable as valuing their business.
Nevertheless, once a decision is made to obtain a valuation, it’s important that the business owner engage a reputable valuation firm. Cost is definitely a factor in the decision, but it should not be the overriding determinant, as quality, thoroughness and accuracy is key.
The owner should do all they can to improve “sellable cash flow”, which often means finding newer ways to increase revenue and profits. This could mean finding ways to increase guaranteed income through additional contractual commitments from customers. On-the-other-hand, investing in the business infrastructure could create extra value to a potential buyer.
Transparency is the best policy
Hide nothing…tell potential buyers everything, warts and all. Don’t varnish the truth…it will come back to haunt you as your transaction proceeds. Don’t leave any stone unturned, since if you don’t do it, a prospective buyer surely will. And this could be a painful experience, especially if the consequences are less that desirable.
If you have any skeletons in the closet, open up and be honest. Don’t let the buyer find out at the eleventh hour, this only leads to distrust and possibly a lost opportunity or worse. The longer you wait to tell “all the truths” about your business, the greater likelihood you will “queer” your deal, as prospective buyers will lose faith in your integrity and honesty.