Selling a small business is a complex endeavor that involves some significant considerations. Whether you profit on the sale will depend a lot on the reason for the sale, the timing, the strength of the operation, and your business structure.
There are a number of important steps that successful business owners take prior to listing their company that can maximize their sale price and minimize stress and frustration. The difference between a successful sale and a failed one frequently hinges on preparation. Providing the right conditions and setting the scene prior to listing your business are essential in your effort to maximize its value and ensure a smooth transaction.
Here are the critical actions to take before putting your business on the market:
Organize Your Finances
The thing that potential buyers will initially want to examine are your financial records. Be sure that you have accurate, well-organized financial and tax records. This will help you establish a strong relationship with the potential buyer and demonstrate that your back office is “an open book.” This practice allows you to show that your company has future earning potential. Collect the P&L statements (profit and loss), balance sheets, and tax returns for that past several years. Also highlight all necessary operating expenses. A few items here can make your business attractive to buyers, including:
- Consistent income figures;
- A trend of increasing profits;
- Sound profit margins;
- A stable customer base; and
- Multi-year contract with major customers.
Document Your Operating Systems and Processes
It’s not uncommon for service businesses to heavily depend on the owner’s knowledge and relationships to make them succeed. This institutional knowledge is terrific when you’re running the business; however, it can dramatically damage your sale prospects if that information isn’t captured for the future owner. Buyers want to purchase ventures that they know will continue to hum after the current owner departs. As a result, selling business owners should document and have at the ready the following:
- Comprehensive operating procedures;
- Your client acquisition processes;
- Your employee training program;
- Marketing Initiatives;
- Your vendor relationships; and
- Customer retention practices.
Organizing and writing up these types of materials shows that your business can operate without you—this makes it attractive to buyers. It also makes your business more valuable!
Set the Right Price
The biggest mistake that business owners commit frequently is asking too much for their business. They set the asking price to high, fearing that they’ll leave money on the table or basing the number on their retirement needs. However, buyers usually do their due diligence and generally know what the business is worth. Business performance is the crucial factor—not personal calculations for your future.
Partner with an experience business attorney who will help you sell your business the right way. This will entail looking at the time to sell, market conditions, and realistic terms. You don’t want to overprice your business and watch it languish on the market, which makes you more desperate to sell and leads to disappointment.
Takeaway
There’s no money-back guarantee that your company will sell. In fact, research has found that 80% of small businesses that are offered for sale don’t sell. Place your business in the 20% that do by preparing for the sale.
Contact the experienced New York small business attorneys at LOVE LAW FIRM with questions about selling your business. We help business owners like you every day at the LOVE LAW FIRM.
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Francine E. Love is the Founder & Managing Attorney at LOVE LAW FIRM PLLC which dedicates its practice to serving entrepreneurs, start-ups and small businesses. The opinions expressed are those of the author. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
