Many companies suffer from poor exit planning, leaving Small business owners discouraged when they make the decision to sell their business. Sellers who have inconsistent revenues, weak strategic plans, inaccurate financial records and a declining client base will find their companies are far less attractive to buyers, and may get far less value out of the sale than they otherwise would. Despite the global pandemic, now is still a fantastic time to sell a business, and owners can use these 8 steps to help maximize the value of their companies before they go to market:
Steps you should take well in advance of trying to sell
1. Get an Early Start: Preparing for a sale takes time. Ideally, an owner should spend one to three years getting the company ready sell, though an advisor can absolutely expedite the process. Owners should focus on key business valuation drivers such as sales growth, product offering, management team and profitability.
2. Assemble Your Team: Gather a group of talented professionals to help you with the sale. A business owner will need a CPA, tax advisor, business lawyer and a mergers and acquisitions advisor. This team will help prepare necessary due diligence materials, develop a buyer profile, structure the deal to minimize tax consequences and most importantly, meet the business owner’s goals.
3. Establish Long-Term Contracts: Buyers will flock to companies that have a dependable cash flow, which can be in the form of either recurring revenue or long-term contracts. Develop contracts that have terms of one year or longer and do not require consent of the customer to transfer the contract to the new owner once the sale is made. This will demonstrate that your business has the potential to bring in sustainable revenue.
4. Develop a Strong Brand. A strong brand and community awareness are the foundation of any small business. This encompasses a wide variety of things including copyrights or trademarks, patents, proprietary mailing lists, long-term contracts, a loyal customer base, a well-recognized name, and a perception of quality.
5. Build a Strong Team. A company has little value if the business is centered around an exiting owner. Cultivating an employee base who have client relationships, technical expertise, knowledge of business operations, and are self-motivated is something every business owner should strive to accomplish. Offering incentives to key employees to encourage them stay through the transition to the new owner provides a level of stability that potential buyers will find encouraging.
Steps to take when you decide you want to sell
6. Organize Financials. Buyers prefer to see electronic records of a company’s financial data. Unorganized and inconsistent financial records may scare off potential buyers. In a small, privately-held company, a buyer may not expect to see audited financials, but will definitely want to see three to five years of well-organized financial data that has been reviewed by the company’s CPA or accountant.
7. Clean Up Outstanding Issues. address any lawsuits, threatened lawsuits, insurance claims, warranty claims, supplier issues, and HR issues prior to putting the company up for sale. Most buyers won’t want to take on significant outstanding problems which will severally impact the company’s value, and often cause buyers to pass on the business altogether. Outstanding issues also suggest that the company is not well-managed, so cleaning them up is critical to putting your best foot forward.
8. Develop a Sales Strategy. A mergers and acquisitions advisor works with the business owner to develop a sales strategy centered around the buyer profile and business description report to ensure that your asking price will seem reasonable to potential buyers. This advisor will do most of the lifting related to the sale, so the business owner can focus on growing the company stress-free.
Putting it all together
If you are thinking about selling your company, act now. You need adequate time to prepare for a transaction, and poor planning and execution of the sale process will likely result in a significantly lower sales price. Planning ahead can allow you to reap a significant increase in the value of your business.
- Sheila Seck is the founder and managing partner of Seck & Associates, a law firm specializing in mergers and acquisitions, startups, corporate counsel, technology, intellectual property, securities and private equity.