Are You Prepared to Sell Your Business?
Many say the current sales market for small businesses is a “sellers market.” If you’re a baby boomer who has worked hard to build a business, you may now be in a position to rethink the rigors of the daily grind. However, if you’re like many small business owners, your personal wealth is tied up in your business. So how do you prepare for the sale of your business? And how can the value of your business be maximized in this sellers market?
One of the first questions you should ask as you begin to think about selling your business is “Do I have a clear idea of what I want to do with my life after the sale?” Be sure you want to sell. This is a very dramatic change for someone who’s used to having control, taking charge and probably working long hours. Late in the selling process, after you’ve paid for the services of attorneys and accountants, is not the appropriate time to address this question. If you’re contemplating the sale of your business, it’s important to sit down and do personal goal planning, much like you did when you first started your business.
Once your personal goals have been established, you should begin grooming the business for sale. Like preparing to sell a home, you may need to do some additional work and make some changes in order to make your business more attractive to potential buyers.
First, as the owner you should identify the key elements that most directly affect the operating performance of your organization, known as value drivers. When managed properly, these key elements can lead to enhanced financial results and make your business desirable.
Value drivers are different for every company, but include:
- Strong brand image
- Future viability of product
- Good team of employees
- Solid business structure
- Attractive customers
- Succession plan
- Upward trend in profits
- Strong assets
- Cost effectiveness
Second, you need to review the human resource capacity. A business shouldn’t be carrying more employees than it needs so this may require planning ahead. It could merely involve allowing for natural attrition. This may also be a good time to review long-term commitments such as retirement benefits.
Third, you should document the management structure. Most buyers hope a strong management team is already in place. Included in your documentation should be management meeting notes, formal job descriptions and an organization chart. These documents will provide a potential buyer with a clear picture of your company’s business structure and how it operates.
Next, prepare a Seller’s Memorandum. This document should provide much of the same information included in a business plan, including:
- A business profile — a description of what you do
- An executive summary — why you are selling the business
- A business overview — who you are
- A market analysis — who your customers are
- Company strengths — what your company is good at
- Risk analysis — what can go wrong
- Financial analysis — cash flow, forecasted and historical, financial data
And most important, make sure you put together a solid team to represent you in the sale process. This includes an attorney, accountant and financial planner. These individuals are trained to help guide you through this important decision and planning process. Skimping here can result in less than optimal outcomes.
