PREPARING YOUR BUSINESS FOR SALE: ARE YOU READY?

Is My Business Ready to Sell From an Operational Standpoint?

It goes without saying that an unprofitable or poorly managed business is going to be difficult to sell. Here are some things you should do to ensure your business is ready to hit the market:

• Make Sure Your Business Can Run Without You
  The most important indicator of a sale-ready business is whether it can operate without the owner. If you want to put your business on the market, you need a strong, independent management team that knows how to get along without your expertise or hands-on guidance. This is one of the biggest hurdles for most business owners, and it’s important to the longevity of your business whether or not you plan to sell. (We discuss this topic in more detail in our blog about survival tips for business owners.)

• Diversify Your Revenue & Customer Base
  If 80 percent of your revenue comes from one customer (this is a real-life example), that’s a problem. It’s simply too much risk for a potential buyer—what happens if they lose that customer during the sale, or in a year? Preparing your business for sale is all about creating a stable, lucrative, and seamless buying opportunity. For that reason, it’s also important to diversify your revenue sources with different products and services. Relying too heavily on one revenue stream creates a riskier environment—both for you now and for potential buyers later.

• Create Recurring Revenue
  Repeat customers are an incredibly attractive asset to buyers. If you can prove you have 100, 500, or 1,000 customers coming back to you every month, that makes an easier deal for the future owner. Compare that to a business that relies on generating new revenue every month and you’re already ahead of the competition.

• Get Rid of Debt
  You can sell your business with debt, but again, it comes down to making your business as attractive as possible for potential buyers. The easier it is to purchase your business and generate a profit, the higher value it has, and the better your offers will be. When it comes to debt, every buyer is different—your business might be purchased by a larger firm in the same industry, a competitor, an outside party, or a private equity firm—and all of these people will view debt differently. For smaller competitors, debt could be a major turn-off; for others, it’s not much of a hurdle. At the very least, the buyer will factor the debt into their offer price, so if you want the most from your deal, pay it off as part of your pre-sale prep process.

• Consider Binding Non-Compete Agreements
  Depending on your industry, having employees sign non-compete agreements could make your business more attractive to buyers. If you’re in an easy-entry business like landscaping, there’s more risk that employees will leave and start their own business—but if every employee has a non-compete agreement in place as part of their contract, you eliminate that risk for you and potential buyers.

• Ask Yourself: Is the Market Value of Your Business Worth the Sale?
  We worked with one business owner who determined they could make about $800k a year while running their business, but its fair market value was only about $2 million—so it didn’t financially make sense to sell. They’d be “losing money” after just a few years. If you’re in this position and you’re ready to step away from the business, consider a partial sale, partnership, or restructuring so you can empower others to manage more of the workload.

Am I Mentally Prepared to Sell My Business?

Many people don’t consider the emotional toll selling has on a business owner. Here are some things to consider to ensure you’re mentally prepared for the process:

• The Due Diligence Process Can Be Grueling
  There are a lot of moving parts when selling your business, and some buyers use the due diligence process to “wear out” the seller. You’ll need to sign nondisclosure agreements, prepare all the necessary information for the buyer (revised PNLs, tax returns, etc.), and complete a slew of other tasks to get through the sale process. There are companies that exist solely to manage the due diligence process, and they often drag it out and make it more complicated in hopes that the seller will “cave” during negotiations. Due diligence can take 60 days or even up to six months. Simply put, it’s a tough process, and you need to be prepared for the mental endurance it requires.

• Your Life is Going to Be Different
  We work with a lot of people transitioning into retirement, and sometimes the biggest hurdle is a psychological one—when you sell your business, you’re no longer “making money,” you’re not contributing to your community the same way, your routine is completely different—it’s a lot to adjust to, and many people don’t realize how tough the transition is until they’re in the thick of it. Unless they’ve planned something significant for their life post sale, lots of business owners end up feeling a little lost. There also might be sentimental reasons you’re not ready to let go of your business—maybe your parents started the company, or you watched your kids grow up in your store. Whatever the case, it’s important to consider the emotional ramifications so you can create a plan and feel more excited when the big day comes.

Ignorance is not Bliss

All in all, when it comes to selling your business, you want to enter the process with your eyes wide open. When you know what the road ahead looks like and what buyers are looking for, you can better prepare yourself, your business, and your family for a smooth and profitable sale. In our next few blogs, we’re covering what to expect throughout the sale process and how you can position yourself for success. In the meantime, we’re happy to help with any questions you have about your financial situation—just click the red button to schedule a consultation.