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How to get your business ready to sell in 8 simple steps

A successful business sells itself, right? Not so: thorough preparation, undertaken over several months, is essential.

Deciding whether to sell a business can be a highly emotive decision. It can be exciting, daunting and even overwhelming.

But it doesn’t have to be stressful, especially if you follow the seven simple steps outlined below.

Choose the right time to sell 

In the real estate world, location is everything. In business sales, timing is everything. 

To most business owners, selling their business only springs to mind when it's their last viable option - for example, if the business is hemorrhaging money, facing a legal battle or filing for bankruptcy. 

In this instance, the chances of making a profit are almost entirely out of the question. The business will attract buyers who specialise in distressed businesses, who are eager for a good deal and are willing to squeeze every last cent out of the seller.

The best time to sell is, in fact,  when the business is doing well and firing on all cylinders. It's simple, the more money the business is making, the more appealing it will be to investors and the higher the price the business will fetch when it's sold.

However, sellers will also need to consider the market conditions and assess the industry they are in, asking themselves questions like: is it in a bubble? are interest rates low or high? 

Understand the time frame

One of the most common mistakes made by those who want to sell their businesses is that they often don’t understand the amount of time and effort it’s going to take.

In a survey of experienced business brokers, 72% indicated that a majority of business owners don’t allow enough time for an effective sale. A common result is that the business sells for less than the owner would have liked because the sale was rushed – or ends up not selling at all.

The average business sale takes between six and nine months with some industries requiring as long as 15 months. If you understand and accept this fact going into the process, you’ll be able to take full advantage of the considerable preparation time by following the rest of the steps listed below.

Get a ballpark valuation

It’s best to get an initial ballpark valuation early in the process from an independent, unbiased source such as an experienced business broker or accountant who specializes in business valuation. These independent experts are in a better position to arrive at a realistic valuation than you are because they’re not emotionally invested in the business.

You can also gauge the market yourself by checking the price of similar businesses on BusinessesForSale.com. Remember that the business sector, location, size and revenue all play a part in determining the value of different businesses.

Ensure your books and records are in order

Incomplete or inaccurate records indicate one of two things to potential buyers:

1. You’re incompetent and therefore your business has been poorly run.

2. You’re hiding something.

This may not seem fair, but it’s human nature to make such snap judgements. If you want you and your business to look their best to a potential buyer, you must keep your financial records in order.

As you know, sole proprietorships – especially those that deal primarily in cash – may allow the owner to pocket some or all of the profits as part of the normal course of business.

However, if the actual amounts are not accurately represented on your tax returns they will mean nothing to a buyer. Failing to record income in this way will make your business appear less valuable than it actually is.

Spruce up the premises and equipment

This comes down to the real estate concept of ‘curbside appeal’. Although the logical part of a buyer’s mind may realize that paint peeling off the walls or an unkempt lawn truly have no impact on a business’s true worth, that’s not necessarily how they feel.

Think like a buyer, if the premises and equipment look shabby, the buyer is likely to assume that the entire business is neglected. On the other hand, a clean and tidy place of business will allow the buyer to focus on what really is important: the true financial value of the business itself.

Review all necessary paperwork and documentation

In preparation for the sale, it’s important for the current owner to review all legal documents, incorporation papers, leases, permits and contracts to ensure everything is up to date and easily accessible.

Not only should all this paperwork be made available to prospective buyers, but you as the current owner should be intimately familiar with its details so that if and when the buyer or their lawyer asks a question, you can appear competent and knowledgeable about your enterprise.

As a seller, you can expect any buyer to carry out due diligence before agreeing to a price. If your paperwork isn't in order, or any inconstancies are spotted, you can be assured that a buyer will rightfully look to squeeze you on price. 

Start separating yourself from the business

It would be disturbing to a prospective buyer if it were impossible for either one of you to imagine the business running without you.

Take steps prior to the sale to begin extricating yourself from the day-to-day operations of the business. This serves two purposes:

1. It makes it easier for a prospective buyer to see themselves stepping in to smoothly take over.

2. It provides the necessary framework in case the new buyer prefers to have a less active role in day-to-day operations, effectively increasing the number of prospective buyers.

Get your advisory team together early

Your accountant, lawyer, business broker and anyone else who serves in an advisory capacity will do a better job if you involve them in the selling process early on. The earlier they are involved, the more thorough and informed their advice will be. Click here to find a business broker on BusinessesForSale.com.



Jo Thornley

About the author

Jo joined Dynamis in 2005 to co-ordinate PR and communications and produce editorial across all business brands. She earned her spurs managing the communications strategy and now creates and develops partnerships between BusinessesForSale.com, FranchiseSales.com and PropertySales.com and likeminded companies.

@BusinessMaiden

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