Many of the books and other sources of advice on starting your own business talk about having an exit strategy from the start. In reality, business owners rarely think this out in advance because they are busy growing and running the business in question. Of course, it’s never too late to start. In this article, we will look at some steps you can take to prepare your business for a sale.
Get Yourself Out First
While there may be buyers looking to get directly involved in your business, having a business that functions without your daily input makes it attractive to a wider market of buyers who may want more of a hands off investment. A truly stand-alone business requires up-to-date procedure manuals, competent management, working systems and much more. Removing yourself from the business will very likely be a bigger challenge than selling it as it will require hiring people and delegating responsibilities that you’ve likely been holding onto since inception. After that, updating the standard operating procedures and tweaking the financial and inventory systems will be — emotionally speaking — a breeze.
You want your business to be as clean and worry-free as possible before the sale. This means reviewing leases, contracts, and other agreements that a potential buyer will inherit. Depending on the type of business, it may make sense to look at extending these agreements further into the future or moving long-term agreements down to annual renewals. Obviously, any ongoing litigation or legal issues should, if possible, be cleared as well — it will devalue the business and break any deal if it is not disclosed from the outset.
The same approach needs to be taken towards all the costs of the business, including the employee payroll. Staffing can’t be locked up like a lease can, but review your staffing needs and ensure basic cross training is done where possible, ensuring continuity for the new owner. If there are any problem employees, this is the time to address that as well.
Get More Information Flowing
Even if you aren’t planning on selling anytime soon, you should start getting more analytical data from your operations. This means tracking advertising spends and results, foot traffic, input cost trends and all the other information you’ve probably grown instinctively sensitive without writing it down. The more complete your records are, the more of a story you can create around the business beyond the basic numbers.
Dress Up the Finances
How to present your business’s finances will vary by industry, but it is usually a good idea to smooth the revenue over the calendar year if possible. This may mean tightening up payment terms, timing payments to other vendors and re-negotiating payment terms on sales and receivables. If there are any financial measures that are particularly important to your business, work to bring in line with the industry averages.