Adding Value to Your Business Before it's Time to Sell
Adding Value to Your Business Before it's Time to Sell
When it comes time to sell your business, it is important to present it to potential buyers in the best possible light. This doesn’t mean just looking good on the outside, your business should be profitable and functioning well to appeal to prospective buyers.
Importantly, the business should “divorce” itself from you the owner, so that the Goodwill vests in the business itself and is not seen to be part of you, the owner.
Exit Planning to Add Value
Exit planning is essential for the survival of your business, for the sole fact that not all sales are gradual processes. Some occur due to sudden events, such as ill-health or family issues. Having an exit strategy in place ensures a smoother transition when it comes time to sell your business.
A great way to prepare your business for sale is to view your business through the eyes of a prospective buyer. Would you want to buy your business if you viewed it with fresh eyes? If the answer is not a concrete ‘YES’ then you have work to do.
Here are some ways you can add value to your business when preparing to sell:
- Make sure all financials are up to date- this demonstrates that you are on top of the financial aspects of the business at all times.
- Show proof of profitability (even with certain adjustments)
- Ensure all necessary contracts are in place, up to date and can be legally transferred to new ownership
- Tidy up processes, manuals and other key operational documents to demonstrate that they are fully up to date
- Make sure your lease for the premises is secure if the premises is of critical importance to the ongoing business e.g. a retail business
- Sell off plant and equipment as well as other assets that no longer contribute to the business so that they do not represent any weaknesses and become a distraction to the sale process. Similarly with any redundant or old stock.
- Do a general ‘tidy’ of the premises.
- Organisational structure- are there key staff in place and how critical are your (the owner’s) functions to the business?
How this client prepared to sell their business so they could retire.
To demonstrate a real-life example, Roy was contacted by an accountant to meet with his client who wished to retire and sell his business.
The owner was performing the functions of both factory manager as well as a specialised machine operator on an expensive piece of equipment which produced approx. 50% of the income. I immediately identified this as a weakness and threat that a buyer would identify and I advised the Vendor to immediately advertise and employ for a qualified engineer to take over the machine operator function.
By the time that the business profile was completed and the business was placed on the market, the Vendor had employed a suitable replacement so that when qualified buyers questioned who would replace the vendor in this function, I could answer that this person was already in place and being trained. This then eliminated a major objection and opened up options of who the buyer may be. The business received 4 offers within 4 weeks and was sold within 6 weeks.
When it comes time to sell your business, it is important to present it to potential buyers in the best possible light.
Brokers Objective
The objective of an agent when selling your business is to be able to attract as many qualified Buyers as possible, in order to provide you, the Seller, with as many options as possible and to be able to obtain the best result for you in respect of both price and the terms agreed.
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Tags: selling small business entrepreneurs tips
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