Preparing To Sell Your Business | Lifestyle

by RichardBaker

There are a number of things which you can do to prepare your business for sale; here is our advice. Preparing your company for sale is the only way to maximizing the amount of money a buyer is willing to pay.

When planning to sell a business, it is important to remember that selling a business can take up to 12 months and may involve on-going commitment during a transition period.

1. Value your business

Be realistic - try to understand the real value for your company and use this as the foundation for any sales process. The value of your company needs to be objective, related to your industry and from a third party source.

A valuation will give you a base-line for gauging buyer offers and will give you an idea of what you can expect to net from the sale. It will also tell you your business's market position, financial situation, strengths and weaknesses.

Obtain a valuation from an accountant or an experienced business broker. The organisation performing the valuation must have access to current accounts and forecasts. Most importantly, any business broker needs to understand current industry sentiment and having a clear sector understanding is imperative.

2. Prepare your accounts

A buyer is most likely to need 3 years of accounts. If your accounts are professional and well prepared you will make a much better impression with the potential buyer. Well prepared accounts also make due diligence simpler, quicker and cheaper.

3. True profitability?

Small and Medium sized businesses often put through their book a number of non-operational costs. It is imperative to understand these costs and have the necessary justification to argue why they should be excluded.

In addition, there may be infrequent expenses (often called "one-offs") that the business has incurred during the past three years that should be excluded in a buyer's analysis of recurring cash flow.

4. Financials

An early conversation with a financial advisor to understand both the personal and corporate tax situation is imperative. An understanding of your tax situation will impact timing and may influence deal structure.

5. Paperwork

Prepare documents such as incorporation papers, permits, licensing agreements, contracts of employment, rental agreements, client/customer and vendor contracts. Make sure all documents are available, current and in order.

6. Planning management succession

How will the buyer be supported after the sale. A succession plan must be in place before the business is marketed. An area for particular focus is to show the buyer how the day-to-day activities of the sellers will be replaced.

7. Motivation for sale

Buyers always want to know why you are selling. Be prepared to articulate your reasons and make sure they are genuine.

8. Supporting advisory team

Use a sector-specific business broker who will be able to advise you before and during the selling process. We recommend that you contact business brokers, legal representatives and accountants who are proficient in mergers and acquisitions at least 3-6 months before you wish to start selling your company.

Most importantly concentrate on the business' core activity and do not become caught-up with the selling process. If your business does not perform as well it will give the buyer every reason to lower the price. A good advisory team will understand your need to focus on running the business and will allow you to do this.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Richard Baker is a Director at Beanstalk Management with over a decade of experience advising businesses. To learn more about preparing to sell your business review the Business Brokers area on his site.