Selling your business is similar to selling your house.When you sell your house, you want to get it ready because you know that potential buyers are going to be coming through and evaluating it against the other houses on the market. To this end, we may paint the house or do some landscaping. We may take care of any deferred maintenance. When you sell your business, you should follow the same approach. Do everything that you can to make your business shine in comparison to other similar businesses that may be on the market. Below are some actions that will make your business more marketable.
Get the financial statements ready.
You should have the Balance Sheets, Income Statements and Cash Flow Statements for at least the last three years available for the buyer before putting your business on the market. If possible, you should also have pro forma financial statements for future years, especially if there is growth expected in the future.
If you need help in getting your financial statements ready, you should first discuss this with your accountant. However, the Small Business Development Center at Yavapai College (SBDC) can assist you by reviewing your financial statements and providing feedback.
Make your business easy to hand off to a new buyer.
The more you can document how the business operates, the more appealing your business will be to a buyer. By creating manuals that show how the business operates on a day-to-day basis, it will be easier for a potential buyer to understand and see how he can take it over successfully. Think about it from a potential buyer’s perspective. SBDC can assist you with this by reviewing your current operating documents and making recommendations. We have experienced business consultants who will share their perspective and insight.
Make your business independent.
Your business should be independent in the following four areas:
You – If your business does not run efficiently when you are not there, then it is too dependent upon you.
Employees – If any individual employee quit and it would cause a huge problem for your business, then you have a problem now.
Customers – If your business is so dependent upon a single customer that your profitability would be significantly hurt if that customer left, then you have a major weakness that needs to be addressed.
Vendors/Suppliers – Relying on a single vendor for essential supplies can increase the risk of a shutdown due to lack of inventory.
Dependence in any of these four areas will decrease the value of your business to a potential buyer. Anything that jeopardizes the certainty of the earnings/cash flow will cause them to discount the value of your business. SBDC can help you develop strategies to mitigate these risks and build a stronger business.
Appearances do count.
The time to replace that worn-out piece of equipment, upgrade to new technology or paint the building is before you put the business on the market. The time to “spiff up” the business is before you put it on the market. It might be helpful if you took a look at your business from the perspective of a buyer. Try to put yourself in the place of a prospective buyer. Going back to the house analogy, new houses sell faster and at higher prices than “fixer uppers.” The same is true with businesses.
Be ready to address buyer questions.
If you are not already, you should get up to speed on your industry and business environment. You should be able to discuss your business’s position in the marketplace, why your industry and business are growing, and the effect competition might have on that growth potential. SBDC has experienced consultants that would be happy to review your industry with you and suggest some talking points that might address concerns that a buyer might have. We can even role play with you so that you can practice addressing buyers’ questions.
Before you put your business on the market, do your best to eliminate surprises. Review every facet of the business and remedy any problems that could appear during the sale process. No one likes surprises – least of all, potential buyers. Whether it is a legal problem, an accounting issue, environmental concern or something else – solve it now.
Financing is an important aspect in sale of your business.
Studies have shown that a seller who asks for all cash receives on average only 70 percent of his or her asking price, while sellers who accept financing terms receive on average 86 percent of their asking price. In many cases, businesses that are listed for all cash just do not sell. Most sellers are unaware of how much interest they can receive by financing the sale of their business. It also tells the buyer that the seller has confidence in the future of the business. If a seller cannot afford to finance their business, then helping the buyer find financing will also add value to the sale. Working with SBDC, we can assist the buyer in applying for small business loans. QCBN
By Michael Seibert
Michael Seibert is a financial and management professional with the Small Business Development Center at Yavapai College. Call 928-717-7232 or visit us online at yc.edu/sbdc.