Many business owners have no intention of selling their business at this time, but the reality is that everything is for sale if the price is right. However, selling your company shouldn’t be a spontaneous decision. In fact, the ideal time to start strategizing about selling your business is two or three years before you’re actually ready to close.
What strategy do you need to implement to prepare for the sale of your business? What does selling your business actually entail? What should you be doing ahead of time to make the sale of your business successful? In this four-part blog series, we’ll explore the process of preparing, valuing, negotiating, and finalizing the sale of your business from a financial perspective.
Your Financial Records
Your business’ financial records will be an integral part of the selling process. You should start reviewing and sorting through all of your financial records meticulously years in advance.
Most potential buyers will request a copy of your last 3-5 years of tax returns and a copy of your most recent financials. Having “clean” numbers on these reports is essential. Any mistakes or disorganization in your financials can be a red flag that your potential buyer can use to walk away or use against you. Some strategic things you can do to make this process easier are:
Avoid paying personal expenses through your company — this will raise questions!
The owner’s compensation needs to be in line with the role you serve. If you are underpaying yourself, then expect a potential buyer to question you and want to adjust your company’s value.
Having your financials audited or reviewed will add legitimacy to your numbers.
The bottom line when preparing your financials is: you want as few questions as possible on the financials you provide a potential buyer. The more clear and straightforward your financial reports are, the less room the buyer has to alter your company’s value or find issues with buying your company.
Know Your Business
If you want to eventually sell your business, then you need to know every single thing about it. This includes how it currently operates, its potential and even its weaknesses.
First, establish some key metrics that you can review monthly to track the performance of your company. It is critical that you know the absolute and trends of your sales, labor cost and operating expenses in order to maximize the net profit and growth of your business!
Next, educate yourself on how your business is structured. Review the company by-laws and the operating agreement to ensure you know absolutely everything about your company. This will help you avoid unexpected surprises when negotiating or finalizing the sale of your business with a buyer.
If you discover changes that need to be made within your business, then they should be addressed before beginning the process of selling your company.
Although it isn’t directly financial, preparing your team and leadership for your absence is essential as well. If you want the organization to continue running smoothly and profiting after you’re gone, you need to consider your role and responsibilities. Buyers will also be looking to see how dependent the company is on your presence, which can affect their judgment of how much your company is worth. For an in-depth look at factors like efficient processes, prepared leadership and your unique value proposition, you’ll need an expert business coach to share their knowledge.
Now that you’ve gotten your business ready to sell, you can start evaluating offers from buyers. In the next blog of the series, we’ll explore the different types of buyers you may encounter and the due diligence process.