If you want to sell your business, you need to understand what is needed to get it ready for sale. The goal of a sale is to receive the most value (money) from the perspective buyer and therefore, the seller needs to make sure there is VALUE to purchase. Value is more than net income or cash flow. Value is the FUTURE. The buyer is buying the FUTURE. Listed below are the readiness issues in preparation to sell a business. Steady and predictable growth is the plan. The goal is to increase the transferability of the business.
Develop a mindset that you are going to prepare to sell. This needs to begin 2-3 years prior to putting the business on the market.
Continue to do business, as usual, and continue to increase business, develop new markets and new products/services. You will want to show that value is increasing, and the business is viable. Those that become complacent will reduce their value
Improve your income
Clean up your financial statements (P&L, Balance Sheet, Cash Flow Statements)-Make sure they are accurate, reliable and readable with no errors.
Increase sales and net income-show consistent growth.
Improve your assets
Dispose of unproductive assets and unsalable inventory
Clean up potential liabilities
A new owner doesn’t want your old problems or any hidden debt
Show several different revenue streams
Separate owners’ expenses on the financials
Have your bookkeeping current and up to date
Develop an organizational plan that has a sustainable team to operate the business and make decisions-If you are doing all the work, there will be no value when you sell. You need to have a good team and an operational system that is working smoothly
Have an employee manual
Have an operating manual with documented policies and procedures
Have a solid long-term management team
Clean and orderly facilities with employees that are effective and productive
Current and effective technology
High and documented customer satisfaction
Understand your competition/niche and your strengths and weakness and recognize them
Diversify your customer base
Show a high customer retention and repeat business
Evaluate the barriers to entry, market, finances and vendors
Show there is VALUED future growth and it is accessible and profitable
Diversify your product/service offerings
Summary- Drivers to add value to a company for sale
Long-term employees with a motivated management team
Operating systems that work to improve profits and cash flow
Diversified customer base
Diversified product line
A distinct competitive advantage
Documented procedures, processes that are sustainable and scalable
Improving cash flow
The ones who lose are those that let their business go downhill. They decrease cash flow, customers, employee turnover and overall operational effectiveness. They lose interest, get tired or start to drain the company from its cash and other assets.
5 key Points
Develop a mindset
Keep your company growing and moving forward
Keep your financials in good order showing positive cash flow and profits
Show a diversification of revenue
Move yourself away from the operations