There are many best practices to adhere to when selling a business. A business is much more likely to be sold for the best price if it is managed as if it were always for sale.
Valuing Your Business
Of course, the assets and liabilities of the business are used to calculate the market value of a company by a business appraiser or broker. However, this is just the starting point for the valuation of your business.
Providing the Financials
A buyer will also want to examine the cash flow of the business to determine what would the most equitable sales price for the company, especially if the buyer is incurring debt to purchase the business.
Is There Room for Further Growth?
A potential buyer is also interested in whether the business is growing in its market niche, and if the market will continue to grow for the particular products and services the business offers. Being able to provide information on this will certainly be a positive.
Additionally, a prospective buyer will evaluate if the current owner is reinvesting money into the business or just taking the profits without an ongoing investment into new technologies or additional infrastructure.
Time the Sale of Your Business
For a business owner, it is important to recognize that you can almost always be successful when you sell a business under the right conditions and for the right price. A good time to think about selling a business is when you have just had a positive, profitable year.
A less advantageous time to consider selling a business is if you are under financial duress or are compromised by other pressures such as health issues or the loss of a key employee. However, selling a business can be a profitable venture with a positive attitude, due diligence and hard work.
Don’t Keep All of Your Eggs on One Basket
There are some very simple, best practices to consider before putting your business on the market. Evaluate if you have too much of your business traffic coming from a few, large customers.
Are you too dependent on just a few customers and if so, can you diversify or broaden your customer base before putting your business on the market?
A potential buyer will consider a business that relies on a few, large customers to be more risky than one with a broader customer base, even if the bottom line on your income statement is in the red.
Will it be Business as Usual Once Sold?
Another concern of a prospective buyer when you are selling is if there is a solid infrastructure in place. A buyer will feel more comfortable buying a business if it is self-sustaining once the current owner steps down. If there is not a solid infrastructure in place, the business will be valued at a lower price than it would be otherwise.
Your business is a much more marketable if it can continue to run smoothly when the next owner takes over. The prospective buyer will value the ability to walk into a turnkey operation with the same employees, equipment and so on.
Keep the Books in Order
When you are ready to sell your business, you should get top dollar. Make sure that your books are in order, that you have a solid customer base and that your business will run smoothly without you when you step down. Keeping organised is crucial when trying to impress a potental buyer. The last thing they want to be getting into is a ‘can of worms’!
These are some of the fundamental, best practices to engage in when you are considering putting your business up for sale.
For many business owners, years of their life’s work has been spent on building, improving and sustaining their business.
This article was written by Peter Watson, CEO of www.BizListings.com.au, an Online Business for Sale Company in Australia.