How to Prepare Your Business for Sale

This article is written by Amber Brunning. Having a background in communications and management, Amber often writes about small business and budding entrepreneurs. When not working, you can find her online chatting with her friends or read industry blogs. Connect with her on Twitter.

If you’re looking to sell your business, there are a couple of things you should know. First, you’ll need at least a year of preparation before selling. If you’re planning to sell your company right away, you probably won’t get the full value.

Sell Your Business

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Plenty of businesses have changed hands during the last few years and there might be someone waiting for a business like yours to go on the market. The more time you take to prepare your company for sale, the higher will be the chance that you make it to the very top of buyers’ short list.

Here are 8 steps to take when preparing your business for sale to maximize its value.

1. Learn About Valuations For Your Sector

Your first step is to get solid information about the valuation multiples buyers use for companies located in your industry. The truth is that different sectors use different multiples. Some will be interested in the multiples of profit, others in revenues or cash flow. Talk to brokers to get some of these benchmark metrics.

For example, if you’re running a business based on a website, you could use tools like Digital Exits to see how that type of businesses is valuated. At that point, you should also ask about the best places to sell websites.

Knowing what the buyers will focus on will give you a serious advantage and a lot of confidence in putting together your information kit for prospective buyers. Most of the time, it’s your database that works as your biggest asset, but you might find out that stock inventory levels are just as important.

You can get valuations from various sources. Get in touch with local accounting firms, business brokers, and investment banking firms. Make sure that the company performing your valuation can access the current data on privately held transactions in your sector.

2. Get Your Finances In Order

Those who will be evaluating your business need at least three years of financial information.

That’s why you need to present them with a range of formal statements prepared or reviewed by accountants. Internally generated statements won’t make a good impression.

3. Get A Hold Of Your Profitability

If you claim a variety of nonoperational expenses, make sure to offer documentation that supports these expenses. For example, if your business is paying for your personal car lease, include that information in the package.

Have a good look at your business and you might discover some rare expenses you had during the last three years that should, in fact, be excluded from the recurring cash flow in a buyer’s analysis.

4. Prepare Information Kits

Your next step is to prepare a sales kit where you put together all materials that provide full information to prospective buyers. You can include examples of your marketing materials, an overview of your finances, positional contracts for your management and other members of the team.

Don’t forget about a detailed inventory of your assets, equipment, and other physical components of your business operation. Buyers want the type of data as part of their own due diligence so the more information you provide, the easier the sales process will be.

At this point, you don’t need to disclose proprietary information that will need to be covered by nondisclosure agreements or noncompetes. The idea behind the sales kit is to present and position the company in the best possible light in order to attract the right kind of buyers.

5. Prepare Your Team

Your team needs to be prepared for the transformation, so make sure to create and strategize a good communications plan with your management about the critical objectives and your desired outcome of the sale.

That’s where you should also seek outside guidance because communicating the sale can be quite tricky. You don’t want to instill a sense of panic at the organization by under communicating or over-communicating the sale.

Your plan needs to include not only the general strategy behind the sale and the reasons why you are selling but also a range of technical details such as the transfer of phone numbers and passwords. It’s that type of things that cause stress during the transition process.

6. Create A Growth Plan

Just because you sell your business, it doesn’t mean you should stop thinking about its future.

Show that your company has plenty of growth ahead of it. Nobody will want to buy a business which will stay flat or go down. If you can show at least three years of meaningful growth following the sale, you’re in a good place.

7. Make A Good First Impression

Imagine a buyer visiting your headquarters for the first time. Will they see order or chaos?

Buyers look for companies that are well-organized. Order always makes a great first impression, so be sure to organize your company in a way that presents the entire operation as orderly.

8. Know Your Reason For Selling

When looking to buy companies, buyers are curious to know why the seller wants to exit the business. That’s why you should be prepared to tell them your reasons for selling.

It takes a while to sell a business and every sale process has some flaws. Be patient and take your time when looking for the best buyer.

And even if all that preparation might seem daunting, the more work you put into presenting your business, the smoother and quicker the sales process will be – and the more value you will get in return!

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