Prepare a business for sale
How to prepare a business for sale? If you are thinking of selling your small business, one of your first questions to answer is more than likely; where do I start?
One of your first starting points is to be clear exactly what you are selling. This may seem obvious but many sellers think they will deal with it when they get an offer. So let’s break this down and look a little more closely at it.
In simple terms, the two most important things to a buyer when looking to buy a business are current cash flow and potential. From the buyer’s perspective, the cash flow is the fuel that feeds the business to pay the suppliers, employees, landlord, tax man, lenders and to keep the business going. In addition, they need cash flow to feed their family, pay the mortgage, pay any loans and have something left over after all their work and capital investment in the business with a little in reserve in case something unexpected happens.
For the buyer to achieve the above, they need to purchase all the assets of the business, and, just as importantly, understand what each asset does and how it contributes to the cash flow and/or potential of the business. As the seller of the business, it’s therefore important that you make it clear what those assets are and present them in the best possible light. If this seems obvious, then I can tell you that it’s not. It’s amazing to me how many business owners don’t truly understand what makes their business run and the need to keep it lean and mean so it operates at its full potential. (Isn’t it funny how that word “potential” keeps popping up?)
So if you are thinking of selling your business, your immediate response to this question may have been “I am selling the business as a going concern on an ‘as is’ basis.” This is perfectly fair. But you need to do a little better than that. And I’ll explain why later.
So we agree the business is up for sale. When you have your first buyer meeting, the buyer will be absorbed in processing what they can see and assume they will buy with their purchase of your business. The first thing to do is therefore remove any items that are not part of the purchase price. If you have collectables such as paintings, antique cars or items that are personal to you and not needed to make the cash flow of the business, remove these now.
If the business has inventory, make sure the inventory is fresh and as useable as possible. If a buyer sees a lot of old inventory with doubtful value, it will become a specific negotiating point in the transaction and may kill the deal. If time is on your side, start selling the inventory to your customers even if it needs to be at a reduced price. You are likely to get more from your customers than being forced to sell it as a discount as part of the purchase price to the buyer.
The next thing to do is make a list of all the Fixtures, Furniture and Equipment. Hopefully this list is already in place as your accountant would be using this list as the depreciation schedule for your tax return. If the list doesn’t exist, now’s the time to build it as when you are in escrow and are ready to sell the business, it is going to be necessary. If the list is old, now is a good time to update it by making sure you still have everything and it is in good working order and condition. If you can no longer find it, remove it from your list and talk to your accountant about writing it off for tax purposes. If it’s still on the list but it no longer works, sell it or get rid of it to make the presentation of the business better and allow the items that are working and in good order stand out to the buyer.
If your business has Works In Progress, make sure you can easily arrive at a value for those items. It will become a mandatory negotiating point in the transaction.
If you plan to sell your business, ask a family member, friend or neighbor you trust to look at your business and give their perspective. When you are so close to owning and running your business it is not easy to see the wrinkles and warts that every business has. My Golden Rule when either buying or selling a business is “See things from the other party’s perspective.” This approach will keep you grounded and increase your chances of successfully selling.
If you have questions about selling your business send me an email to Andrew@RogersonBusinessServices.com