You’ve put your blood, sweat and tears into creating and building a business, but at some point it will be time to think about how to sell it and move onto the next phase of your life. A key consideration for what the “next phase of life” looks like is often dependent upon how much your business is worth.
There are a few simple steps that you can take to prepare your business for sale:
- Use a professional – Having an expert help you with valuation can yield huge dividends. A valuation expert will use multiple approaches in calculating what your business is worth to ensure that you understand the maximum value you may obtain through sale of the business to an unrelated third-party. Additionally, an experienced accounting firm or Mergers and Acquisition Attorney may be able to introduce you to prospective buyers.
- Look for a buyer from within – People that work in your business every day may have the best sense of the true value of the Company. Sometimes your best bet for identifying a buyer for your business is to find someone who is already “invested” in your business.
- Minimize expenses – One of the best ways to get the highest yield from the sale of your business is to make the company as profitable as possible. One way to do this is to tighten-up on expenses. Look for any areas of expense that don’t provide value to the Company. Also, be sure to evaluate recurring expenses such as insurance and employee benefits on an annual basis.This will ensure you’re getting the best price possible for appropriate levels of coverage.
- Document key processes – When someone buys your business, what they may be buying is your revenue stream, especially if you are in a service business. Clear, well-documented processes explaining how you do business will assist in the transition or sale. In essence, your documentation of internal controls and your internal processes should enable new owners to get up to speed very quickly.
- Protect intellectual property – Use copyrights, patents and trademarks to protect your company’s intellectual property and brand. When acquiring a company, two facets of the due diligence process are to make certain that unique products or services you have developed are not readily available to your competitors and your rights to the benefits of these intellectual properties are legally protected from copy or unauthorized use.
- Maximize revenues – Optimizing the income side of the ledger is just as important, if not more so, than reducing expenses. Look for opportunities to produce incremental increases in revenue. Look to sell new or additional products or services to existing customers. Don’t be afraid to ask your customers for referrals, they may be your biggest fans!
- Begin tracking key metrics – Having the ability to provide accurate, timely business metrics can provide a benchmark of your profitability against other competitors in the industry. This information may also used in the valuation process to determine more subjective multiples in the final calculation of the proposed sales price. Benchmarking may also identify key areas that a seller should concentrate on in anticipation of the sale of their business.
- Perform a competitive analysis – Understanding the strengths of your organization relative to its competition can help a prospective buyer more readily recognize the value of what they are buying. While financial metrics are essential, understanding other factors in the valuation of your business such as the Company’s technology or human resource assets are also important.
- Be open to “creative” terms – Being open to creative payment options, such as seller financing or installment payments made over time can draw in a lot more potential buyers and may result in a higher sales price for your business. In addition, entering into an installment sale may reduce your tax burden. These options must always be evaluated based upon the seller’s appetite for risk in becoming the lender and on their need for more immediate cash flow.
Selling your business can be a difficult and emotional process. By using an expert to help you through the process, you can make maximize the opportunity. Have questions about selling your business? Contact us to learn more about the process of readying your business for sale.
