Business owners are usually too busy managing and growing their businesses to think about selling it. Many have their own business simply because they want to run a business, or they do not want to work for other people. However, the best time to think about selling your business is when you do not want to sell it. It is often too late to perform the necessary actions to maximize the value of a business just prior to a sale.
Preparing a business for sale properly takes years of hard work, detailed analysis and accurate record-keeping. Here are 12 tips you may begin thinking about now;
- Create a strong brand image in the marketplace. A brand often makes up the majority of a businesses value.
- Build competitive barriers to entry. Obtaining exclusive rights, trademarks and patents to products & services will command a higher price for your business.
- Get serious. Deciding to sell your business is not a decision that should be taken lightly. Selling a business is time-consuming, and will probably cause some business disruption, especially when employees, customers, competitors, and vendors are aware that your business is for sale.
- Time your deal right. Although it always makes sense to try to sell during a hot market, it’s even more important to pay attention to what’s going on within your company and industry.
- Prepare financial statements and other information in advance. Be sure you have prepared financial statements and literature promoting your business. Develop an operations manual and system. Also, be sure to have an attorney review any material you will be using to corroborate the success or nature of the business you are offering for sale before you announce the sale publicly.
- Strive for accuracy. Serious bidders will demand a high level of comfort, especially about the accuracy of cash-flow statements, accounts-receivable lists, and the assessed value of assets. Consider investing in audited financial statements. Eliminate all liabilities which may scare off potential buyers, and ensure that all assets listed are verifiable and can be proven objectively. Per Sean Woody, CPA of Woody & Company, P.S., “approach the sale of your business as if you are selling to your customers.” A buyer can tell whether you have performed your due diligence.
- Start with a reasonable asking price. They are making a serious mistake. A high asking price scares away many potential buyers. It tells some people that you are not serious about selling your business. Determine what your bottom-line price is in advance. In general, the value of a service business is based on net income/profit and often has lower multiples (service businesses tend to be more dependent on the owner/employees). The value of a manufacturing business is often based on revenue and profit projections and have higher multiples (because products are manufactured and the company is therefore less dependent on intangibles such as experienced, knowledgeable people).
- Keep it quiet. Letting other folks know that your business is for sale can be a big mistake. Lines of credit may be pulled, and purchase orders could be delivered only on a cash-on-delivery basis. Do not let key employees know that your business is for sale. They may inform other people, including their fellow colleagues, and soon your employees are sending out resumes and looking to leave the company. Since high quality, experienced employees are part of the assets that are transferred in a business, departures of key employees can be very costly.
- Accept reality. If you’re operating in a highly competitive market, there’s no doubt that your buyer will insist on a non-compete agreement.
- Keep financial reports and tax filings current. Although there may be nothing wrong with your company, you’ll scare off bidders with tax-reporting extensions or excessively delayed financial statements.
Even if you never sell your business, by performing these tips you will enhance the value of your company and maximize profits.
–Peter M. Guyer
Peter M. Guyer is the Founder and President of ATHENA MARKETING INTERNATIONAL (athenaintl.com), an international marketing, consulting and business development firm serving food and beverage manufacturers. Tel. (206) 749-9255.