How to Prepare a Business For Sale – 5 Steps
I am a business broker based in South Carolina. I work with business buyer and business sellers in both South Carolina and Florida. I also owned my own business of 20 years and sold it. A business owner interested in selling a business needs to know how to prepare a business for sale.
FACT- Many businesses that try to sell do not actually sell.
Looking at the reasons that a business does not sell can be guidance towards measures a current business owner can make to prepare a business for sale. Selling a business has a lot of moving parts. How can one increase the likelihood of a successful sale? The answer can be in preparing for your business sale.
What are some of the top reasons businesses Don’t Sell?
- Business Performance
- Business has poor records
- Business completely dependent on Business Owner
- other liabilities encumbrances
The value of a business is ultimately defined by what a willing capable buyer (s) is willing to pay for that business.
What could possibly be the best approach to preparing to sell your business is to look at your business as a Business Buyer rather than a Business Seller. Would you buy your business? If so how much would you pay for your business?
What steps can a business owner do today to prepare a business for sale?
How to Prepare a Business For Sale
- Have realistic expectations. Stories circulate about “Google buying this business for 10-20x cash flow”.
Sales like this are not the norm. Businesses with Sales of $5M + sell for a higher multiple of cash flow than businesses with $800k of Sales- Generally. Try to research what other similar businesses my be selling for or have sold for. A qualified Business Broker may assist with this step.
- Ensure your financials are concise and clean. Are there any outdated entries on any of your financials. Can you readily reconcile any differences between tax records and Income Statements? Furthermore a business that is doing better is more likely to sell than a business with declining sales or margins.
- Have documented business operational procedures or business practices and procedures. If you already have them, review and update them. Consider if it is time to archive or throw out records from 5- 10-15 years back.
- Make big and small steps to have less reliance on you as a business owner. Ask the question- “Does your business rely on you ? Delegate if possible. Sometimes it’s hard to let go of the idea that “only I can do that”. I’ve personally experienced a long stretch of illness while owning a business and quickly learned of the many activities that I was doing that could be done by other members of my staff.
- Clean up your business. Your office, your trucks, grounds, facilities, equipment, tools and employees appearance can all add value. Equipment involved with the sale that is well maintained and in order provides to the “Peace of Mind” a business buyer is seeking. Again envision yourself as business buyer and looking at your trucks and most of the tires are bald, and smoke is coming out of the exhaust and they look like hell. It may only take a few thousand dollars to improve this conditions, but a prospective buyer may mentally devaluate business value by tens of thousands or more. It may create more doubt and uncertainty about other components of business.
Again- not every business that tries to sell actually find a buyer that is a fit. There are steps you as a business owner can make to increase the likelihood of a successful business sale and transition.
Preparing your business for sale is a very important step in the process of selling your business. Working with a trusted advisor, finding prospective business buyer candidates is highly important as well. Finding the “right” buyer candidate to transition your business to is the end goal that begins with preparing your business for sale.
For More information on Selling a Business or Buying a Business contact Scott Messinger- Business Acquisition and Sales- Gateway Business Advisors www. SellaBusinessAdvisors.com