Be Prepared to Put Your Business on the Market Tomorrow
Life has its unexpected twists and turns, and not everyone makes life decisions years in advance. Consider, for example, these scenarios that might prompt you to want to sell your business in, say, the next six months: You fall on ill health and can’t continue as you have been. Your spouse gets a job in another state and together you decide to make a new start somewhere else. You decide, somewhat spontaneously, that now is the time to retire, even though you had planned to work a few more years.
In order to have the freedom to make such life changes expediently, you should take steps now to be ready to put your business up for sale.
Who’ll be on your sales team?
Your business is probably the most valuable thing you own, so it’s important to begin the sale process with your eyes wide open. In most cases, the first step is to put together a team of experts who’ll help you through the selling process. A business broker will serve as the quarterback of your sales team. A broker can guide you in finding and qualifying prospective buyers, marketing your company to these prospects, setting a price for the business, and closing the sale. An attorney, an accountant and a valuation professional, each experienced in business sales and purchases, should round out your team.
Don’t rush: You’ll want to exercise caution in building your team. These individuals will play a critical role in the success of your business sale.
Who are your potential buyers?
Understanding the different types of business buyers is essential to formulating your sale strategy. Here are some of the main types:
- A complementary buyer is a company that sells products and services that complement or enhance those you sell.
- A strategic buyer is usually a competitor that’s looking for companies where it can add value to their products and services.
- Family and heirs often present unique challenges, such as decisions involving who will (or won’t) be able to buy shares, who will occupy positions of leadership, and whether or not the company will be sold at a family discount.
Lastly, don’t forget about your employees and managers. An internal sale could provide unique planning opportunities through the use of an Employee Stock Ownership Plan. And that will help ensure continuity for customers and staff.
What will buyers examine?
Your specific goals for the sale of your business will hinge primarily on why you’re selling. For example, if you mainly want to keep the business in your family and ensure a smooth transfer of ownership to your heirs, you need to identify the next generation of leaders and start grooming them years in advance of the sale. But if your goal is to sell the business to outsiders at the highest possible price, you should be taking steps long before the sale to boost the company’s value to potential buyers.
In considering companies to purchase, most buyers will look at quantifiable measurements that will help them gauge their potential return on investment. Thus, the best way to increase your company’s value to potential buyers — and boost its sale price — is to focus on the value drivers that will be important to them.
Is your business appealing, financially and organizationally?
Virtually all buyers will want to know about your business’s financial health. They’ll want to see a history of consistent cash flow, sales and earnings. You’ll need to determine which key performance indicators are most important to your company’s financial health and focus on improving them before you list your business for sale.
Human resources are usually the next area potential buyers examine. They’ll want to see a strong executive team that can keep things running smoothly after you’ve left. And they’ll want a skilled and stable workforce in place with relatively low employee turnover.
Your customer base also will enter the picture. Most buyers seek companies with a diversified base and low degree of customer concentrations. If your sales and earnings are heavily dependent on a handful of large customers, this could be a big red flag for buyers.
Last, but not least, business buyers usually want to acquire companies they can grow. Thus, you generally need to be able to show them a plan that demonstrates how they can grow the business after they buy it.
The big event
The process of selling a business is complex, with many potential pitfalls for owners who’ve failed to do their homework. Do what you can now to get ready for the “big event.”