Preparing Your Business for Sale: The Steps That Maximize Value

Most people make the decision to sell their business long before the opportunity arises, however, in the interim before putting the business on the market, the seller should look to position their company in the best light and get the best offer possible. Selling a business is not a simple task of clearing up the accounts and fixing the front door. Instead, it involves a comprehensive approach to making the buyer feel comfortable through due diligence and attractive efforts.

Finances Must Be in Good Order

The first thing that scares off buyers is questionable finances. If the numbers don’t add up, if there aren’t clear records of income over the last few years, sellers can expect buyers to walk or submit drastically low offers.

To get numbers into shape it can be helpful to clearly lay out a few years worth of accounts. This should include profit and loss projections, balance sheets and tax returns. They need to tell a coherent story. Revenue needs to have a steady projection; expenses need to be industry reasonable, any line items that seem out of place must show justification. Buyers investigate every detail and anything that appears amiss seems like a red flag.

A major factor in buyers’ ability to assess businesses for valuation is the separation of personal and professional expenses. Many owners run their personal expenses through the business—car payments, cell phone bills, dinners with family marked as business lunches. Buyers know this happens but they also expect clean financials where such expenses are noted as personal allocations or written off in some capacity. If everything is confused and muddied together it becomes hard to value appropriately—and trust is lost.

This means hiring someone for bookkeeping or accounting often pays for itself when it comes time to sell. A third party’s easy set of books and a review by an outsider holds more weight than a meticulous owner created spreadsheet—regardless of either party’s semantics. Perception is key in business sales and if it looks good it will be valued good.

Business Operations Documents Make Businesses Transferable

Operating a business strictly in one’s mind makes it hard for anyone else to assume operations. They buyer does not want to spend six months shadowing the owner to learn how to effectively run the business. Thus, all processes must be documented to allow ease of transition from one owner to another without prolonged complications.

This means creating manuals which might sound tedious but don’t need to be overly elaborate. Simple documents signifying how day-to-day tasks are accomplished, what procedures are put into place for situations that arise and what routines are standard for weekly or monthly check-ins settle the buyer’s concerns. Even the simplest of operations can have written procedures for vendors used consistently; customers serviced regularly; and quality control measures applied.

This means employee training documents and job descriptions take on an added degree of importance should there be key employees working therein—showing buyers that just because one person leaves doesn’t mean the whole operation crumbles. It also gives buyers an idea of labor needs and costs associated with maintaining operations.

Moreover, documenting processes helps in case there’s something inefficient about how things are actually run that could use fixing prior to sale. Often through documentation owners see how it’s done and may find they don’t need certain steps or that they’ve developed methods that should be updated immediately before anyone else changes them anyway.

Customer Analysis Provides Comfort

Customer fear comes from concentration and retention. If 60% of one’s revenue is derived from three customers, that’s too much risk. If there’s high turnover in customers, there might be something wrong with customer service or product. However, should sellers take the time before sale to assess their customer base statistics and present them in a way that communicates stability or diversity, it may go a long way for buyer security.

If there is customer concentration where too many clients rely on too few customers, it’s best to try before listing to diversify efforts or at least land a few other smaller clients so that reliance is lessened by the sale time listing. Getting a new, untapped list of customers on the books is a great strategy when looking at how to trigger a bidding war for your business sale and maximise the final sale figure.

Asset Value Matters

Appearances are important—in real estate and in business sales. If it looks like deferred maintenance has run amok and there’s a broken door or busted screens or separated signage, it’s likely that other issues have floundered beneath the radar as well. Taking care of all repairs necessary—and looks good—offered value.

This doesn’t mean new renovations must occur but rather everything must be cleaned up; stock must be maintained; everything must be organized and looking professional. Freshly painted walls; mopped floors; reorganized shelves; clean windows; operating machinery—these things should be fixed beforehand because they show validation for operations.

Equipment records assess due diligence in important ways during this phase as well—maintained machines can boast recent repairs while aging machinery holds no strengths—even if they haven’t busted yet. For service-based businesses, an accessible lease offer valued longer than month-to-month increases buyer sentiment; viable terms better than soon-to-expire contracts create uncertainty for potential new owners.

Legal Issues Must Be Addressed

Outstanding issues tend to stifle negotiations—for they raise more questions than answers. Buyers run credit checks as well as compliance checks for permits or regulations. That means no licenses should be held up or pending and general accounting should ensure that tax obligations from local to state to federal levels are in good standing. When they aren’t, buyers decide that more efforts are needed than they want.

Intellectual property counts too—trademarks, patents, processes, websites—and third-party sales can complicate things unless sellers know that their domain names are owned by them as are corporate social media profiles; transfer all digital properties as needed without delay otherwise buyers become frustrated at conclusion when things aren’t in place.

Build Out Management Personnel

Key person risk represents another major problem. If potential buyers realize that everything relies on the owner day to day without any other backup , then confidence could be lost.

This doesn’t mean management teams must be hired. It means that lower-level employees trained enough can step up without issue even if there’s not a significant management team present—or any at all—or it’s been shown during Christmas breaks/vacations/family emergencies that operations have run without hiccup everyone relied upon was just gone for a day or two.

For smaller entities where this approach doesn’t make sense—in retail operations especially—a standardized procedure helps buyers feel more confidence they can step right in.

Why It All Matters

Just by prepping a sale versus pushing something public reveals whether an owner knows what they’re doing or not; interested buyers can sniff out half-assed efforts immediately whether it’s someone’s first time selling or someone’s sold ten businesses by now.

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