Top 10 Ways to Prepare for Selling Your Business
As a buyer of businesses, our primary goal at Palindrome LLP is to review as many acquisition opportunities as possible. Avenues for business listings are manifold, so we make an effort to mine numerous listing sources to identify businesses that are best aligned with our specific investment approach. Given our focus on company fit rather than on penetrating a specific market segment, we review a diverse swathe of businesses before making decisions about which companies to acquire.
The businesses we review provide different products and services, are located in various geographic areas, and often have divergent business strategies guiding their operations. However, all of these organizations are striving to present themselves in a manner that maximizes value and leads to a successful sale. This can be a complicated process to navigate if you are selling a business for the first time.
At Palindrome LLP, we encounter all levels of effectiveness and preparedness when reviewing business listings. Speaking from a buyer’s perspective, we thought it could be helpful to offer some critical suggestions to prospective business sellers. Below you will find a list of our Top 10 Ways to Prepare for Selling Your Business. We hope that these steps will help you streamline the process of offering your business up for sale, and assist you in creating the most compelling and attractive business listing for your company.
1. Plan ahead.
If you’re thinking about selling your business, it is imperative to spend ample time planning for the sale. This includes thinking about: what you will need to do to prepare the business for listing, who you would like to hire to help you list the business, what your criteria will be for selecting an acceptable offer, and the process of transitioning the business after closing the sale.
This industry is full of people who will happily take your money by listing your business, but the value you will receive can vary drastically across listing agents. To ensure that you are selecting the best avenue to list your business, you will want to reserve plenty of time to meet or speak with the individual or organization you will be working with. During this process, it is critical that you establish clear expectations for how your broker will go about marketing your business for sale. Doing so will position you to have a better chance of attracting the right buyer and the right offer for your business.
Your business may be your biggest monetary asset, as well as your primary source of retirement. Remember this when preparing to sell your business, as it will serve you well to dedicate a substantial amount of energy to the planning step in this process.
2. Be emotionally prepared.
Make sure you’re ready to relinquish the emotional attachment to your business. Forget about how much more money and freedom and time you will have after your business has been sold. At Palindrome LLP, we believe that the hardest part of a sale is the emotional and psychological process of letting go of your business. As a business owner, so much of your identity has been tied to this role.
In your mind, try playing out what it will be like when you are no longer waking up early to go to the desk you have been sitting at for so many years. What will you miss most about your responsibilities, your clients, coworkers, workspace, or the impact that you have had on the lives of others? How will you be occupying your time once your business is sold? What other passions, interests, hobbies, family time, travel, investment opportunities, etc. will you have the space to explore and focus on?
Once you do a few mental trial runs to see how it feels living your new post-business-sale life (or maybe you only need to do one!), assess your emotional readiness. Are you feeling fearful, uncertain, or downright unwilling to let go of your business? Or have you experienced a sensation of freedom, exhilaration, and joy at the thought of the new possibilities once you have completed a successful transaction? If you are emotionally ready for the next step, you are well on your way in the process of selling your business.
3. Manage your expectations.
Make sure you thoroughly understand what outcomes and conditions you are looking for in a successful sale of your business. It is important to be specific in setting your own expectations, so that you can clearly evaluate which offers will satisfy the conditions of the sale.
Here are some questions you might ask yourself. Are you leaving for good? Do you want to stay around during the transition? What kind of criteria do you have for a buyer? What monetary value are you hoping to realize through the sale? Are you concerned with things like employee retention, salaries and benefits, and work life balance for your team once you depart? Do you want external relationships with suppliers or buyers to remain in place? Do you want operations to run the same, or are there novel innovations you would like to see implemented by a new entrepreneur at the helm?
Shoring up the above details in your mind will make it a lot easier to be selective when it comes time to receive and review offers for your business.
4 . Tie up loose ends.
It is not ideal to sell your house half-painted or with an unfinished roof. Perhaps you will find a suitable buyer—but not without offering a substantial discount for work left undone.
To avoid being the recipient of inadequate offers from buyers, consider whether some of the following aspects of your business are tied up satisfactorily: company policies and procedures are clear; operations run smoothly; management is effective; workspace is functional; B2B relationships are strong; company reputation is solid; legal and financials are in order; mission and vision are clearly defined; performance is consistent; current development and strategy plans are in place; future opportunities and direction are apparent and promising.
5. Have a plan for succession.
The transition of ownership can be the second greatest source of anxiety for the seller when listing a business. There are both practical and emotional concerns involved in succession planning. To ensure a smooth transition, you will want your broker to walk you through the process of business succession.
Finding the next person who is the right fit to take over your business will simplify the transition of ownership and reduce the emotional stress that could arise during the process. Ideally, you will identify a buyer who is willing to uphold and support provisions in the sale that enable you to exit gracefully and on your terms. Your ability to do this will also ensure continuity for the new owner of the business, as it will minimize any upset to people and procedure within the organization.
6. Organize your financials.
Have a clean set of financial statements ready to present to the buyer. Emphasize your profitability, honestly represent your balance sheet, and clarify any confusion that might be present when it comes to your business’s financial records. You want your financials to be as straightforward as possible.
Many business owners have elements of their personal finances and their business finances that are interwoven. This can make it quite difficult for a buyer to discern exactly what they are buying when they review the financial documents for your business. This is especially true if you have personal assets and liabilities on the balance sheet. Schedule time to work with your broker and a CPA if necessary to identify and separate personal from business financials in a way that a buyer can easily understand.
7. Understand valuation.
Before listing your business for sale, you want to have a clear conception of the valuation of your company. Valuation can be tricky to understand. It can vary according to a wide range of factors, and some elements of your business may hold more or less value depending on the type of buyers your business attracts.
At Palindrome LLP, we value highly the existence of strong infrastructure, both in terms of people and process. Other buyers may be interested primarily in the balance sheet and your business’s overall profitability. Perhaps you have a solo investor or an investment company that is eager to get their hands on some groundbreaking proprietary technology. Take the time to understand the most valuable assets of your business and how those assets will appeal to different types of buyers.
If you have excessive debt or heavy amounts of inventory or receivables, you may want to take the time to reduce these outsized items so that your business can command a better valuation. If you are unhappy with where the valuation for your business sits, work with your broker, do your research, and put in the energy to boost the valuation of your business before listing it for sale.
8. Clean up your workspace.
You would be surprised what a clean physical space does for a sales transaction. Having your business looking its best reflects on you and the way you have been running your organization. Seeing a tidy and organized environment will signal to potential buyers that all is in order, both on the surface as well as behind the scenes.
If you are storing personal items at your place of business, remove them. Sweep the floors, dust the ledges, wipe down the surfaces, and make sure that the place is looking its best.
When it comes to cleaning, there’s no reason to monkey around. Hire a professional if you have any doubts as to your own ability to get things looking spic and span. The investment will be well worth the return.
9. Keep it under your hat.
If your business is anything like ours, you are close with your employees and your culture thrives on transparency. Open communication and honesty are commendable in the majority of circumstances, but telling your employees about your intentions to sell your business too soon can be disastrous—both for your employees, and for your potential sale.
If you disclose your intentions to sell before you have all the details in place, the revelation can provoke nervousness, anxiety, or worst of all, prompt your employees to begin seeking other opportunities. Change is hard and your business provides the livelihood of your employees. Be considerate of this, and make sure you have a plan in place before you announce your plans to sell. When it’s time to let your team know, be ready to answer some hard questions.
10. Be patient.
It can take a while for a business sale to happen, especially if you have selective criteria outlined for the sale.
Once your listing is live, you will have plenty of interested investors. As with any sale, some of these buyers are simply kicking tires; some are going to offer absurd terms. Do not fret. Be patient and take the time to work with the right buyer who can carry on your legacy. Leave what you have worked so hard to build with a buyer who can ensure another 30 years of successful business!
