Here are some key questions to consider before you put your business on the market.
So, you're ready to sell your business? You've nurtured it from the ground up, into a venture that's now successful enough that it will appeal to others, who will ideally pay your full asking price. But if you think that alone is the criteria that make a business sale-ready, think again. There are many things to consider before you put your business on the market if you hope to reap the benefits of a successful sale.
Here are seven key questions to consider before you put your business on the market:
1. Are you ready to hand over the reins?
First and foremost, you must ask yourself if you are really ready to step away from your company and whether or not it's at a point that it can survive without you. As many entrepreneurs can attest, sometimes they are the sole reason their business is a success. This is particularly true in cases where client relationships have been built over a number of years.
Still, the reality is, buyers are generally more attracted to companies that can thrive without the current owner's continued involvement. If you're still handling the day-to-day success that makes your business thrive, you may want to put your sale aspirations on hold, and begin mapping out an exit strategy that removes you from key roles. Only then will you truly be able to determine whether or not a future sale of your company can be successful.
2. Is your business currently thriving?
Buyers won't bite based on past successes. If your business has already seen its heyday, don't expect potential buyers to line up eager to buy it. This is why smart entrepreneurs often sell their businesses at the height of its success and popularity - they ride the wave to the top and then get out.
Ultimately, an informed buyer is going to want to verify that your company has been successful within the past 12 months and that it has a sustainable future. It's up to you to prove that.
3. Do you have your affairs in order?
Potential buyers are going to want to see all kinds of information, likely spanning years. This includes tax returns and balance sheets. They're going to want to see financial statements spanning entire 12-month periods in order to gauge seasonal fluctuations in revenue.
Potential buyers will also want to see licenses, permits, leases, customer and vendor contracts and anything else pertaining to business operations. Having your affairs in order also includes taking care of any outstanding debts or other legal issues that could potentially derail the sale of your business.
4. Have you consulted with all of the necessary experts to ready your business for sale?
When it comes to selling a business, don't try to go at it alone. You'll want to retain the advice of experts, including accountants, attorneys and business brokers that are seasoned in selling businesses in your particular (or at least a similar) field.
Doing so will ensure no important details, such as obtaining non-disclosure agreements from potential buyers, are overlooked.
5. Can you prove business profits?
Always remember that buyers are interested in profits over revenue when considering whether or not to purchase a business. The two are very different, and while revenues can look good on the surface, informed buyers will understand the difference between profit margin and revenue.
6. Have you conducted a thorough business valuation?
There are myriad factors to putting a dollar value on a business, including some you may not be familiar with. Like the previous consideration, this one comes down to expertise. A professional valuation will not only provide an accurate estimate of what your business is worth, but it will also better prepare you to vet potential buyers.
A proper valuation can also expose weaknesses that need to be addressed before you officially slap that for-sale sign on your business.
7. Are you prepared to answer questions and be transparent?
For a sale to be beneficial to both parties, you must be prepared to answer any and all questions that your potential buyer deems important. This means being honest about the pros and cons of your business. Don't hide anything. Tell your buyers about your challenges in the business along with the successes.
If handled correctly, the sale of your business can be the perfect final chapter to your entrepreneurial journey. By addressing all of these points, you'll increase the chances that both you and your buyer walk away from the deal satisfied and in the best position for future success.