So You've decided it is Time to Sell Your Business

You’ve decided to sell your business.  One goal is to get good price for it, but there are other goals that are important as well.  Most sellers want the business to succeed after they are gone.  They want their former employees to do well.  They want their former business to contribute to their community.  They want the new buyer to succeed. 

To many, the business is their legacy, so future success is part of a greater purpose.  It is more than just money in their pocket.  (By the way—and this is a subject for another blog—if you are a buyer and you don’t see the seller as having goals in addition to money, stay away.  You will be in for some unpleasant surprises.)

This blog focuses on the things you can do to enhance the financial value of your business.  You will notice that most of the suggestions help with your other goals too.  These things will even help if you change your mind and decide not to sell.

For many of these tasks, time matters.  Ideally, you need 5 to 7 years.  You don’t just fix a few broken physical things (like if you were selling your house) and expect the buyer to think your business is all good.  The buyer wants to see performance over time because they are usually paying for earnings over time.  

Here are the suggestions in no particular order.  You'll notice that many of them are ideal goals, more easily said than done, and almost impossible to do perfectly.  Don't let perfection be the enemy of the good.  Just do the best you can.  Any improvement will help.  

Enhance your online presence.  Ensure your website is up-to-date and that you are active on relevant social media platforms. This takes on added importance when you are selling because this is often the first place buyers look to learn about you.  Chances are good that a potential buyer will scour your website more than you or your customers ever will.

Put disputes and nagging issues to bed.  Do you have an open issue with the IRS or any government taxing authority?  A dispute with a customer or vendor?  A zoning issue with the city?  An open unemployment claim?  These questions will be part of a buyer’s due diligence.  A lot of times, these kinds of issues are small in the grand scheme of things.  But it is hard for a buyer to know if these really are small, or are they a large deal killer?   It is best, when possible, to simply say “no, we don’t have any of these issues.

Pay yourself and those related to you fairly and reasonably.  A business in generally valued on profit it generates with consideration of a reasonable pay for the executive.  If you are underpaid or overpaid, adjustments in value will be calculated by the buyer.

The same principle applies to all employees.  Some owners may hire their spouse or kids who don’t do as much as regular employees.  (In some situations, they don’t do anything…). The opposite can happen too, where family members contribute without any pay at all.  Both scenarios cause uncertainty in the valuation of your business.  You want reasonable pay for reasonable work for every employee in the company.

The same principle applies to benefits.  Is your very expensive “company car” really needed to conduct business?  Are your travels for company business within reason?

You may think that you can explain these things and simply make mathematical adjustments.  Well, you can, but here’s the point.  The more of these adjustments you have, the more a buyer feels unsure and uncomfortable.  You want to avoid them having uncertainty and discomfort as much as is reasonably possible.

Clean up your financial statements.  Make sure you have easy-to-access consistent financial statements for several years.  It feels suspicious to a buyer if your financial statements are formatted differently from year to year, or if you can’t put your hands on them quickly and easily.

Along the same theme,  Have your due diligence documentation organized and ready.  Due diligence is the buyer’s effort to look at all aspects of the company.  Usually the buyer gets a due diligence checklist.  As a seller, get a checklist and prepare some of these things in advance.   

Decentralize your value to the company.  This is a hard one.  Disengage your pride and think about this a little bit.  In many ways, you have been the heart and brain of the company.  Now you are selling.  You will be leaving.  Does a buyer want to buy a business with no heart and no brain?  

Time is the key.  New sales people or new managers must be integrated to show buyers that the owner is not responsible for all the sales or all the problem solving.  A capable management team and a deep talent bench will make the business more attractive to buyers. 

Plus, you need time to evaluate whether key employees can make the jump to larger responsibilities.  And this is even more true if you are selling to your employees.

Do not be disheartened if it takes several attempts for this to work.  This is the hardest part about business succession.

Reduce Customer Concentration.  Avoid over-reliance on a few large clients. Buyers look more favorably upon a company that has diverse and multiple clients.  For sure, this item falls under the “easier said than done” category.  

Closely related are companies that have an over-reliance on a small number of products.  This is a big issue in the pharmaceutical industry.  Some large companies only have a few drugs that make them all of their money.  

Buyers like diverse customers and diverse products.  

Develop and Document Repeatable Processes.  Document standard operating procedures to show buyers how the business functions and how it can continue to operate smoothly after a sale. You don’t have to have SOP’s for everything, but it helps a buyer better understand how the business really functions on a daily basis

Be clear on what you are willing to do to assure a smooth transition.  Have a plan for how the business will be handed over to new ownership, including a transition strategy. For most buyers (but not all), this is a very valuable contribution.  For those buyers who don’t seem to value your transition help, I’d suggest that you try to be flexible and don’t take it as a personal insult.  

To summarize:  You want to provide information and show buyers they your company is stable, well managed, and prepared to continue after you are gone.  These are attractive qualities to a buyer.  Your efforts to showcase these qualities will pay off for you and the company.