It is crucial to prepare your business to sell if you want to get the highest price for your business.
These are the five main aspects of the preparation process.
1. Stop running the business
Many potential buyers are taught to believe that a business can’t function without its original owner. Prospective buyers fear that if the current owner is gone, the business will suffer. This fear keeps many businesses from ever being bought.
It is a smart idea to cut down on the time that you spend managing the business every day when preparing your business to sell. Prospective buyers often feel that small businesses will fail if they are no longer managed by the owner. You can prove that the business can run profitably without your involvement, and that you are able to offer a business that is worth a premium.
2. Hire Managers
Buyers prefer stability over risk. Good managers can reduce the perceived risk of your business being acquired. You can remove yourself from the business’ day-to-day running and create a hierarchy of command to help you hire good managers. This will make it easier for buyers to buy your company.
Many buyers won’t pass up a profitable business that has well-trained, knowledgeable managers who are willing to run it continuously from day one.
3. Get business systems in place
In the initial phase of preparation, you should have all business processes documented and in a structured system. Every business practice should be clearly defined. Each member of your organization should have a clear job description and a role. You can use the preparation period to create systems that explain and document each business process. All employees should know how these systems work.
It is vital to build systems as this will increase buyer confidence, which will result in better offers. Many buyers find it beneficial to have a business that runs smoothly, efficiently, and has clearly defined processes. This reduces the time and resources needed to understand and fix inefficient practices.
4. Legal issues
If you are serious about buying your business, it is important to resolve any legal issues or disputes.
Many deals have failed because of legal disputes or issues that the vendor didn’t disclose or resolve. These issues can be resolved prior to negotiations. This will make it easier to sell the property. These issues, such as lease agreements for property and equipment, outstanding payments, court settlements or other liabilities, should be addressed before the negotiation period. They are known to lead to a collapse of deals.
It is also a smart idea to make any verbal agreements with customers and suppliers into written contracts. Prospective buyers want to be confident that the business’ key elements are covered and can be enforced by the law.
You must pay attention to the condition of your office. Make sure that equipment and stock are up-to-date. Also, make sure that your office is clean and tidy. It is important to make a great first impression of your business.
This is also a good time to start looking at your company’s accounts. This accounting method is often used by small businesses to reduce tax. However, it can lead to lower valuations due to the fact that many offers are made using multiples of yearly profits. It is possible to modify your accounting or create a framework that shows true profitability, which will reduce the amount of time spent negotiating the business’ worth.
It’s a smart idea to examine the debt situation of your creditors and work out ways to reduce bad debt. Buyers will be wary of buying businesses with high levels of bad debt or businesses that take too long to settle their accounts. The preparation period should be used to reduce bad debt and restructure certain accounts.
You must make sure that your business is ready for sale if you want to get the best price. It is rare for a poorly-prepared business to be sold, so it is crucial that you do not cut corners.