Many owners experience a lot of anxiety when deciding to sell their business. This unease is often related to not knowing what to expect or even where to begin. However, once the decision is made to exit, there are several small things that can be done to impact how efficiently the sale progresses and what quality (and size) of offer the business will attract.
1. Accounting Records
If you don’t currently utilize cloud accounting software (or at the very least desktop software), it’s not too late to start. In fact, you can even backfill information for previous years to ensure all your accounting is online. Having your accounting information organized and at your fingertips is likely the most important preparation you can do when selling your business. Financial due diligence is a step that will be taken by any buyer, so having your company’s reports online makes it substantially easier to share such information.
Migrating to an accounting software platform is not as difficult as you may think. Providers like Quickbooks (and others) allow you to electronically import transactions directly from your online business banking. Many providers even offer a feature called “Live Bookkeeping” whereby, for a modest monthly fee, you can access an experienced bookkeeper to assist with the setup and training on the software.
If you already have your company’s financials on an accounting software platform, go back and briefly review everything to ensure your information is accurate and up-to-date prior to engaging with buyers.
2. Educate Yourself on the Market
Similar to selling a home, you would want to get a feel for the market prior to listing your house for sale. One approach that is common in both real estate and private business sales is comparables. In other words, know how much similar businesses (industry, size, location, profitability, etc.) have sold for in the past. There are several options business owners have when retrieving comparables. There databases in existence showing actual transaction information obtained from public loan data published by lenders by way of the Small Business Administration. It is important to note that this dataset is truly unbiased as it represents the financing activity that took place on actual transactions.
This valuable baseline information can arm you with the knowledge as to whether you’ve set your expectations too high or too low. Of course, there are company-specific attributes that come into play when determining a business’s value, but examining comparables is a good place to start.
3. Remove Yourself From the Day-to-Day
If you, as the owner of the business, are the business, the company may prove difficult to sell. This is because the buyer would need to possess your exact skill set in order to continue the business’s success. Naturally, this narrows the pool of potential buyers and makes it important for you to hire and develop a team to take on decision-making positions.
When it comes time for you to exit, prospective buyers will easily spot that the team they are acquiring is primed to manage the company’s operations, even in your absence. This is especially key for buyers that wish to be “hands off” or for those located in a different geographical area. So in the time leading up to your sale, plan to gradually remove yourself and empower your team to take on some of the leadership roles you currently hold as it can make a difference later down the line.
4. Customer Concentration Dilution
There is one major issue that can scare off potential buyers: customer concentration. And we see it far too often. Alarms sound off for potential buyers when a small number of customers make up a large portion of a business's sales. There is more to a company’s financial performance than its top and bottom lines. In other words, buyers look at how revenue is derived. Customer concentration can happen very easily and often goes unnoticed by owners.
Who doesn't want to keep that big customer? Who isn’t thrilled with those big orders? However, when undue attention is given to the biggest customers, concentration risk can seep in. To resolve this, ensure you’re making a determined effort to reach out and work with your smaller customers. Generally speaking, smaller customers tend to have more room to grow and often need your attention and education to do so. Empowering your smaller accounts to become larger customers not only grows your business but can also reduce customer concentration issues. Read more about other strategies here.
5. Digital Presence
A digital footprint is essential, today more than ever. It’s practically guaranteed that every prospective buyer will look up your company online, analyze your website, your social media, online reviews, etc. So even if your company is very active online, it is certainly worth a review and possibly even a clean up. Things like unanswered reviews, out-of-date copyright notices on websites, and large time gaps between social media posts are all things that can be quickly and easily remedied.
6. Contracts in Place
Another bit of housekeeping that can have a positive impact is having all your documentation with vendors and customers organized and up-to-date. Over time it’s easy to let contracts with your best vendors and customers lapse as personal relationships grow and you each coexist and work in good faith. However, a buyer may view this as a risk as they won’t have the same relationship depth that you do with these parties.
Maintaining formal agreements with key customers, suppliers, partners, employees and other important players is key to alleviating potential risks a buyer might see. In the end, this will enable a smooth and easy transition of ownership.