Ready, Set, Sell: Essential Tips for Preparing Your Business for a Successful Sale!

Have you ever gone past a shop with a “Going out of business" sale sign? The problem is that you have walked past that store for the past 3 years and that same sign has been hanging there the entire time. Selling your business is a bit like that, you need to be perpetually open and ready to sell should the need or opportunity arise.

Selling a business should be where all those years of hard work finally pay off, where you get the golden handshake, the large pot of cash, and are able to sail off into the sunset on the new yacht. Unfortunately for many business owners that simply isn’t what happens, and its often due to an issue of timing and lack of a clear exit strategy.

Selling a small business takes time and thoughtful preparation. The following are some basic tips on how what getting your business ready to sell, and as a consequence improve your chances of selling it, as well as maximising its value.

Do you have your financial records prepared:

Potential buyers will want to see your financial records to assess the profitability and stability of your business. Ensuring that your financial statements, tax returns, and other relevant documents are organised, accurate, and up to date is critical. Ideally you will need at least 3 to 5 years of records.

Also consider consulting with your accountant to ensure compliance, transparency and accuracy. Consider too any abnormal financial purchases or large one off non-recurring expenses that new or incoming buyers will not have to contend with, e.g. renovations, plant purchases, etc. Removing these can greatly enhance the underlying profitability of the business. Be careful not to get carried away though, as the aim is to accurately portray the businesses performance, not overstate it.

How can you optimise your business performance to appear more attractive:

Before putting your business on the market, focus on improving its financial stability and performance. Potential buyers will be more attracted to businesses that demonstrate consistent growth and profitability. Implement strategies to boost sales, control costs, and maximise efficiency to enhance your financial position.

Have you systematised your business processes:

Efficient and well-organised businesses demonstrate value and scalability. Streamlining your processes, eliminating inefficiencies, and documenting key operating procedures, will help make your business more appealing to potential buyers and also facilitate a smooth transition after the sale.

It also opens the door to potential investors, who are looking for businesses that can be effectively run under management.

Do you have solid client relationships:

A strong client base adds significant value to your business. One would hope that you already have a strong client base, but if you are considering selling then make sure you prioritise retaining client relationships. Show potential buyers that your business has a loyal and satisfied client base to attract higher offers.

If possible, attempt to secure some of these clients under long term contracts. The more secure the client (and revenue) the more confidence buyers will have in future forecasts of continued profitability.

Are your revenue streams adequately diversified:

Relying on a single product or client can be a risk for potential buyers or investors. If possible, consider diversifying your revenue streams to showcase your business's stability and potential for growth. Explore opportunities to expand into new markets, develop complementary products or services, or target a broader client base.

Are your contracts and legal documentation are up to date:

Review and update all contracts, leases, permits, and licenses to ensure they are current and in compliance with regulations. Address any potential legal issues and ensure the transferability of contracts to the new owner. Engage a lawyer specialising in business transactions to guide you through this process.

Are you allowing for an appropriate handover period:

Transitioning out of a small business when it sells requires careful planning and execution. Aside from setting out how the transition will happen; you also need to consider the timeframes in which it will occur. Transferring ownership involves more than just handing over the keys and waving goodbye. You are transferring knowledge, relationships, and the essence of the business itself. Effective communication with employees, clients, and stakeholders is crucial to ensure a smooth transition and maintaining continuity. Proper documentation of processes, procedures, and key contacts is essential for the new owner to seamlessly integrate into the business.

Have you tried to ascertain an approximate value of your business.

How much is your business worth? Answer, whatever someone is willing to pay for it!!

Whilst a tongue in cheek comment, there is an element of truth in this statement. There are many alternative ways to value a business, and in fact Harvard business school teaches over 100 different ways of doing so. It is really finding a value that works for the structure of the business and the sale.

As a starting point I would recommend doing a comparative analysis of similar businesses in the industry as this can provide insights into market trends and comparable valuations. Industry earnings multiples is a common way to value a business as it provides a straightforward comparative method using your future earnings potential. Another method is the asset approach, which involves assessing the value of your tangible and intangible assets, such as equipment, inventory, and intellectual property. Lastly, the discounted cash flow method calculates the present value of expected future cash flows, considering factors like risk and growth potential.

Have you considered what deal structure(s) you’d be happy to accept?

Whilst I would love to tell you that there will be a queue of buyers lining up with open cheque books wanting to offer you an "all cash" deal for your business, it's just not likely to be the case.

The majority of businesses sales are structured solutions which involve alternative means of financing, whether this is via equity, lending, earn outs, deferments, vendor finance, etc. As a seller you need to consider these and what you would be prepared to accept, as well as allowing for the potential timeframes associated with each option. Even a purely leveraged buy out (LBO) offer will take time and require substantial due diligence on the part of the buyer.

Conclusion

Preparing your business for sale requires careful consideration and strategic planning. It's not rocket science; it just requires some proactivity and being ready before you are forced into a position of needing to sell. Hopefully these tips can help increase the chances of a successful sale and maximise what you can get for your business.!