When business owners decide to sell their company, there is a lot more preparation involved than simply applying a new coat of paint and planting some flowers alongside the parking lot.
Although some of the following recommendations may seem time consuming, clients have reported this might improve the desirability and value of their business and expedite the sale after an offer has been accepted.
The initial step an owner needs to take is to understand if now is the time to sell. If a business’ current financial picture doesn’t match the owner’s expectations, one or the other must be adjusted.
Sellers must also know their reasons for selling. It is always one of the first questions a buyer will ask, so the seller should be prepared to articulate the reasons honestly.
Sellers will need to get their books in order. Prospective buyers will want to see at least three years of tax returns as well as profit and loss statements.
Part of getting a seller’s books in order is identifying the business’ true cash flow. Since most business owners claim a variety of non-operational expenses (i.e., personal auto lease, personal medical expenses, etc.), owners must make sure that they have supporting documentation.
Sellers must also make sure all their legal commitments are in order. They need to review their permits, leases, and client and vendor contracts, and understand the impact on the business.
For example, if the business’ location is critical to its performance, a long-term lease will be important to a buyer.
If an owner is vital to the business, efforts must be made to gradually delegate key responsibilities to various staff members, especially those related to customer relationships and revenue generation. A business that is excessively dependent on the current owner may be viewed as having too much risk.
When sellers have a buyer coming out to see their business for the first time, it is important to make a good impression. A buyer looks for companies that show well because it is often indicative of a well-run business. The first impression can turn on buyers and add value for the business.
The common thread is credibility. If sellers want to keep buyers moving forward, they must maintain their credibility by being open, honest and accurate about all things, good and bad.
Buzz Harris is a Licensed Business Broker with The Liberty Group of Nevada. Contact him at BHarris@TheLibertyGroupofNevada.com.