Each year, quite a few entrepreneurs decide to sell their businesses. That decision comes about for many reasons. Ideally, it arises at the end of a long and successful journey. At that point, business owners may be ready to retire or move on to other opportunities. In some cases, though, entrepreneurs elect to sell their companies because their sales are plunging or they foresee other struggles looming on the horizon. As you may well know, preparation is the key to successfully selling a business.
Approximately 10,000 businesses are sold annually in the United States. Still, it’s important to mention that figure only reflects a fraction of the businesses on the market. In fact, 60 percent of the businesses for sale never actually sell. Of those that do, many owners ultimately accept far less than they’d hoped for.
Understanding the Importance of Preparation When Selling a Business
Many entrepreneurs are disappointed by the selling prices of their businesses. Others watch with growing dismay as their businesses sit on the market for years without finding the right buyers. In the majority of those situations, business owners fail to properly prepare before selling.
Being ready in advance of selling a business has several benefits. It helps to ensure entrepreneurs receive fair prices for their companies. It gives business owners a better idea of what their companies are worth as well. Adequate preparation also makes businesses more likely to sell. It gives potential buyers greater awareness of what they may be investing in and what they can expect in the future.
How to Prepare for Selling a Business
Several measures should be taken before placing a business on the market. First and foremost, consider partnering with a trustworthy business broker. Brokers cover many of the points we’ll be discussing here on behalf of their clients. They can also improve their clients’ chances of getting the profits they deserve when selling their businesses.
At the same time, brokers have extensive networks of potential buyers. That means they can not only increase the likelihood of a business selling but potentially sell it faster. While thinking about business brokers and the prospect of selling a business, take a look at the following steps that should be taken ahead of time.
One of the most important steps to take before selling a company is to have a business valuation carried out. Valuations play a few key roles in successfully selling a business. One of the most significant is giving owners realistic ideas of how much their businesses are worth.
In an entrepreneur’s eyes, the company he or she built from the ground up may be priceless. When potential buyers don’t see as much value in a business as its current owner, conflicts are bound to ensue. That may hamper the sale of the company.
From another perspective, a valuation can protect the seller. It may ensure the owner doesn’t sell the company for far less than it’s actually worth. Some entrepreneurs jump at the first offers they receive. In doing so, they could sell themselves short if they’re not aware of how much their companies are truly worth.
Keep in mind, a business valuation doesn’t necessarily have to be the final word on a company’s worth. Having that valuation carried out long before selling can give an entrepreneur a chance to boost the value of the business before it goes to market. That’s where the next steps come into play.
No business is perfect. Even successful ones have room for improvement. If an entrepreneur is disappointed with the initial valuation of his or her company, making positive changes can reverse the situation. Of course, any improvement has the potential to increase the worth of a business regardless of its current status. However, while preparation is the key to successfully selling a business, any capital expenditures must be done well in advance, if the Seller is to realize a return on investment on their expenditure.
When selling a brick-and-mortar business, certain minor cosmetic upgrades can make a major difference in perception and possibly, valuation. They’ll improve prospects’ perception of the business while also adding to the perception that the business is well-run. Many are surprised to learn how much value a fresh coat of paint, new lighting and flooring, and upgraded signage can add to their businesses.
If possible, upgrading the company’s outdated equipment is also recommended well in advance. That may entail purchasing new manufacturing and office equipment, since buyers may subtract for any upcoming capital expenditures that they will need to make from the purchase price. Adding a new vehicle or two to the business’s fleet can also bring greater value to the table, if the business is growing and ready to expand. Upgrades like those aren’t always possible from a financial perspective and will not necessarily add value if they are done right before the sale, as the Seller needs to carefully consider the timing of such purchases. If they’re in the cards, though, they can certainly increase a company’s perception of worth in the eyes of potential buyers, since every buyer wants to eventually grow the business.
Investing in new technology can increase a business’s value, as well, if this is done in advance. That may overlap with purchasing new machinery and office equipment, but it also extends beyond that factor. Consider implementing advanced software and new communications solutions. That can be a costly venture, but it’s likely to generate a significant return on the investment, if done well ahead of time, where the Seller can show the Buyer that the tech provides a competitive advantage or payroll cost savings.
On one hand, new technology can improve a company’s efficiency and lead to smoother business operations. In turn, it may increase productivity and profitability. From another angle, it’ll give prospects added incentives to buy the business and pay closer to its asking price.
Give Financial Aspects Due Attention
Financial processes and documents are also key factors in the sale of a business. Entrepreneurs should certainly have the right paperwork on-hand when selling their businesses. Buyers want to see a range of financial documents when deciding whether a company is worth their time and money. Those should be professionally prepared, up to date, and readily available for prospects to scrutinize.
If a business currently relies on disorganized accounting methods and its financial statements aren’t up to par, those issues could detract from its market value. They’ll make the company less attractive to potential buyers as well. Hiring accounting professionals or having financial advisors assess the business’s bookkeeping procedures and essential documents before selling is advised.
Successfully Selling a Business
Selling a business isn’t a fast, simple process. It’s complicated and time consuming. Entrepreneurs who don’t take certain measures beforehand often end up selling their businesses for less than they expect. That’s assuming their companies sell at all. Being prepared well ahead of placing a business on the market paves the way for success.
Several factors come into play when preparing to sell a business. Preparation is the key to successfully selling a business. Those listed above are only a few of the most significant. Overlooking even seemingly minor details may hamper a business’s value as well as its potential to sell. Working with a business broker can eliminate potential problems. Brokers also aid entrepreneurs in maximizing the value of their companies so sellers get optimal profits when selling their businesses.