Preparing a business for sale can mean the difference between getting a sale accomplished at a reasonable price and getting a less than favorable price, or no sale at all. Preparing a business for sale should, ideally, start several years before it's put up for sale, although many things can be done in a relatively short time before marketing the business. The following are ten common sense ideas that will make the subject business more saleable.
1. Make sure the company’s books are in order
Unusual accounting or mistakes can easily scare potential buyers
off in that they become unsure that the financial statements
are a true representation of the business. Reviewed financial
statements are better than compiled and audited financial statements
are best of all. Buyers typically want to review 3 to 5 years of
annual financial statements and the most recent interim financial
statements.
2. Get organized
All legal documents, employee manuals, licensing, leases, etc. should
be organized and readily accessible. An organized company is usually
a well-run company, giving buyers a higher level of confidence.
3. Make a good first impression
Just like selling a house, first impressions are very important. A
poor first impression may cause a buyer to look elsewhere, while a good
first impression will go a long way to successfully selling a business.
4. Show a history of growth and stability
Although this is often up to the market, buyers like to see
consistent growth in sales and earnings from year to year. This
gives them confidence that future sales and earnings will follow
the same trend. Companies that show widely fluctuating sales and
earnings are assessed greater risk in the valuation process and sell
at lower multiples.
5. Have a succession plan
If you are key to your company, and especially if you are planning to
exit the business after it’s sold, it is important to have a successor
in place. A number two man (or woman) that can immediately step in
and take your place in your absence is very important to buyers. This
lessens the risk associated with the business and allows you to market
the business to financial buyers as well as ones that want to run the
business themselves.
6. Make a long-term strategic plan
Buyers always want to know where the company is going in the future and
a strategic plan should include detailed marketing strategies and
financial projections. This not only gives the buyer an idea of where
the company is headed, it also gives the buyer a means for placing a
value on the company. The projections shouldn’t be pie in the sky,
nor ultra conservative. They should reflect the most likely scenario.
7. Seek out and destroy “deal killers”
The seller of a business should identify and eliminate things
that could kill a deal. Consider locking up key employees with
contracts, renegotiate leases, clean up environmental problems,
settle litigation, etc. The business should be viewed as “clean”,
without issues that raise questions in a buyer’s mind or cause risk
to be assessed as higher.
8. Be prepared to answer questions
Buyers will likely want to know why you are selling, who the major
customers are, who the competitors are, profitability by product
line, planned capital expenditures, etc. The seller should put
himself in the buyer’s shoes and be prepared to answer all questions
asked. Being prepared in advance gives the buyer confidence that the
seller has a good grasp on the company and lowers the buyer’s
assessment of risk.
9. Be prepared for due diligence
It’s wise for a seller of a business to review a typical
due diligence checklist so that all information likely to
be requested, after a letter of intent is issued, is available
and in order. The last thing that a seller wants to happen is
to have a potential sale killed because of something found in due
diligence after a price has been negotiated. Preparing in advance
can help to eliminate this possibility.
10. Get your advisory team together
Your accountant, lawyer and investment banker should all be
on board well before you decide to sell your business. They
can all give you advice in different areas as to preparing
your business for sale.
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