It’s a great time to sell a business. The U.S. economy is in a good place having recovered from the ‘Great Recession’ of 2008 and we are seeing an increase in demand for small-to-medium sized businesses. It is certainly a seller’s market as buyers outnumber sellers by about 10 or 15-to-1¹. Having high demand for your business is great but there are some things that sellers need to take into account prior to listing a business for sale.
The transition in ownership can and should be a smooth process. Let’s take a look at some high-level items that can help get your business ready for market and attract top quality buyers:
- Up-to-date financials: For most buyers, financial statements are the foundation of their due diligence process. So, make sure you get yours reviewed by a reputable accounting firm to ensure accuracy and clarity. As a rule of thumb, it is good to get your last couple years audited. This will not only instill trust between yourself and the prospective buyer, but it will also give you a far more accurate and fair valuation of your business. This step seems logical and simple, yet in reality, the financial statements of most businesses are a hot mess.
- Determining the valuation: A big misconception when it comes to a valuation is that it needs to be an exact figure. Having an exact figure can sometimes turn away a fair offer, or worse, limit the business to a strict price ceiling. Creating a range that includes an upper and lower limit, and then forming a listing price somewhere between the two should be the goal.
There are several methods of calculating valuations- none of which are better or more successful than the other. There are also many ways you can attain your valuation range. Multiple online tools exist (Tresle is currently developing one so be sure to check back soon) that will give you a fairly accurate range to base your listing price on. Another option is to go through your accounting firm or hire a valuation specialist to give you their opinion.
Your listing price, however, is only the beginning. At the end of the day, the price associated with the business is up to the market itself. You want to get started with an accurate approximation in order to attract buyers, but ultimately, the business is worth what people are willing to pay for it.
- The organization’s wellness: Being prepared for a sale goes far beyond financials. Having the company itself organized is another very important step. This means reviewing articles of incorporation, licensing agreements, leases, permits, client and vendor contracts, the company’s legal condition, among other things. Double-check you have all these points available, up-to-date, and in order upon request of the prospective buyer.
Other items to consider reviewing are the business’s equipment, current products, and overall brand image. On the equipment front, ensuring that everything is working well and making sure that you have followed regular maintenance schedules can help maintain value. Make sure current products are selling at an acceptable frequency; any recent drops in sales can affect the final selling price to favor the buyer. Ensuring the brand’s image is intact means that you have put in the effort to clean up customer disputes, negative reviews, and testimonials. Surprisingly, this action can go along way. From the buyer’s perspective, taking over a business that has no lingering customer disputes, only positive reviews and testimonials is a definite plus.
- Preparing the team: Your employees make your company what it is. Without them, it would be impossible to achieve the things you have up to this point. For that reason, it is important to respect them and properly communicate your intentions with them. Let’s pause here to place an emphasis on ‘properly communicate’; this doesn’t mean you need to tell every employee your plans to sell. However, the ones who you consider to be a vital part of the organization should know certain details. This is not to say you should make the sale totally public. If you do, you run the risk of losing employees and clients. It is important to only share the important points with your top team and to inform them that you don’t want the information to be public knowledge. Communicating your reasons for selling, your plan, their job security, and your post-sale involvement are all important points to mention. This can certainly be a tricky process because it is a balance between not making them panic for their jobs and showing them respect by giving them a heads up.
Note: Having key employees commit to staying onboard long term post-sale can increase your business’s value tremendously.
- The small details: Often overlooked are the small details that make your business run smoothly. These items will be crucial for the new owner to know and/or posses. Everything from transferring phone numbers, sharing account passwords, altering bank account information, and so on. This may seem obvious at first glance but these items are often forgotten and actually take far more time to organize than you would think.
- The story: In the end, you are trying to sell. So, you need to make it convincing. Explain to the prospective buyer(s) why you started the business, your vision, the opportunities that exist, and the journey it has taken you on. It is important to describe to them how they fit into the picture moving forward. Be sure to tell the story, but avoid distorting reality.
- Staying onboard: In order to keep employees, customers and vendors, at ease, most sellers remain on staff for a set period of time after the deal has closed. This helps aid a smooth transition and keeps everyone in touch with a familiar face. In addition, the fact that you are willing to assist post-sale gives the new owner assurance as well as some time to learn the ropes a little bit by shadowing.
Having your business ready for market and a solid plan to go along with it only increases your business’s value; and this makes sense if you think about it. From the buyer’s perspective, they are looking for something with low risk and a solid return. Seeing a seller that has put the effort in to have everything organized and ready for the future owner makes the deal far more transparent and attractive. Following these steps will help you get your business ready for the right buyer and make the transition seamless and far less stressful.
¹Tresle, Inc. Data & The Business Buyer Resource Center