To Max Out When Selling a Business, Here are 5 Tips to Help You Prepare Your Small Business for Sale
Recent years brought a sharp uptick in the number of small businesses sold in the U.S. Given that the time might be ripe for selling a business, make sure you have a plan for maximizing its value so you can get a maximum return when you sell.
While many small business owners dream of building a business that can be passed on to future generations, many entrepreneurs launch startups with the goal of building them up to a sale-able level in order to get the money needed for a larger investment, retirement or an upgrade in lifestyle. For these entrepreneurs, maximizing the value of their business before trying to sell is key.
Selling a business? Here are some things that business buyers might be looking for.
Some of the factors that business buyers might be considering when choosing a business to purchase may not be under your control; however, understanding what buyers may be looking for can help you better position your business to be attractive to buyers, overcome objections and help buyers envision themselves as the new owner.
- Business Type (industry, scope, specialties)
- Business Size (number of locations, size of facility/ies, number of employees, number of customers, etc.)
- Customer Base (regular customers, average number of new customers, customer churn rate, retention rate, etc.)
- Business Reputation
- Target Markets (potential to attract new customers)
- Price and Financing Options (how much they will be require to save, how much can be financed, bank financing, private financing, payment plans, etc.)
- Current and Historical Sales and Profits (how much does the business make, adequacy of cash flow, whether there is enough profitability to meet operational expenses plus financing obligations, whether there is money in the budget for marketing, expansion or growth, etc.)
- Ancillary Agreements and Mandates (i.e., what comes along with owning the business in terems of leases, mortgages, other legal agreements, industry memberships or regulations, vendor requirements, city or regional regulations, employee-related mandates or organizations, non-competes, etc.)
Given all that prospective buyers have to consider before buying a business, it’s easy to see that whatever you can do to make your business more attractive to prospective buyers can help you sell your business more quickly and get the most profit you can from the sale .
Selling a Business: Max Out these 5 Areas Before Putting Your Business Up for Sale
1. Max Out Business Potential Starting with a Professional Evaluation
Work with your bank or a consultant to get an objective idea of what your business is worth in the current market and where opportunities exist to improve its value to buyers or investors. Experienced professionals will be able to tell you what potential buyers will be looking for, what potential objections or questions they would raise, which aspects of your business make the best selling points and provide you with a general idea of the selling climate. Use what you learn to make your business more attractive to buyers and determine the best time to sell your business.
2. Max Out Cash Flow
Cash flow is a prime concern for most business buyers. They want to be sure that a business isn’t just profitable on paper, but generates enough revenue to meet ongoing operational expenses, pay salaries and provides funding needed for marketing, repairs or renovations, expansion or other growth strategies.
As you prepare your business for sale, do all you can to improve cash flow by reducing costs, looking for ways to be more efficient throughout your operations and looking for any areas where you may be underpriced – leaving money on the table.
3. Max Out Good Will
Before buying a business, potential buyers will look at tangibles such as cash flow, costs, price and profits – and savvy buyers will also look at any number of intangibles, from your business reputation to civic involvement, employee engagement and community goodwill. As part of preparing your business for sale, make sure that you survey customers and employees in order to find ways to improve engagement, and attempt to resolve any reputational issues.
4. Max Out Staff Appeal
Anyone buying a business will be looking to see whether staff are in place, are happy, are qualified and committed to staying on after the sale. As you prepare your business for sale, put well-qualified staff into key positions, invest in employee training and development, work to improve employee satisfaction and keep staff in the loop so that they feel more excited about staying on after your departure.
5. Max Out Your Customer Base
Putting a business marketing plan in place designed to attract and retain customers before you decide to sell can make your business that much more attractive to buyers, especially if they are new to your industry or region. Ensuring that your business has a solid customer base and a significant number of engaged, loyal brand advocates can help to overcome objections, allay buyer fears and make your business more attractive than other businesses your buyers may be considering.
Wondering Whether 2014 is the Right Time to Sell Your Small Business? (dbsquaredinc.com)
Small Businesses Changing Hands at a Rapid Clip (washingtonpost.com)
My 2015 Small Business Marketing Calendar is available on amazon.com — in print or digital format. It is absolutely packed with marketing inspiration and a working content marketing plan you can use to attract – engage – retain and motivate your customers in the coming year.