Tips for preparing to sell your business
Before selling your business, it is important to gauge its attractiveness to potential buyers and your readiness to hand over the reins.
Thinking about selling your business, but have no idea how to get started? Here are some things to consider to get the process rolling.
You may choose to work with a business broker, your accountant, or another professional or sell your business yourself. Regardless of which route you choose, here are some important points to consider:
Record keeping and accounting
Keep your bookkeeping house in order. Do not wait until the end of the year or when you place your business up for sale to have your accounting or bookkeeping service go over the books. They should be reviewed before you sell the business, and appropriate adjustments should be made. Expect a potential buyer to want the most recent financials as well as business tax returns. As the deal progresses, it is likely that requests for updated financials will be forthcoming as well. Nothing says “unprofessional” like a business bookkeeping mess.
Cash flow-inbound
Keep your accounts receivables up to date. Having seriously delinquent overdue receivables is a red flag to potential buyers and reduces your bottom line. Remember, a good customer is one who pays on a timely basis, not one that buys and buys and continues to owe you money. Too many old, uncollected invoices in A/R is a major turnoff to potential buyers and a bad business practice at that.
Cash flow-outbound
Identify the personal vehicles, perks, trips, entertainment, etc. that you charge the business as an owner. Candidly disclose those to your business broker or another professional so that they can properly identify these “add backs” and adjust your income stream for valuing your business and attracting buyers.
Many small business owners write off the number of elective expenses that a new owner would necessarily assume. Anything that adds cash flow back to the bottom line will make your business more attractive to potential buyers, as well as increase the likely price of the business. These can range from any number of personal vehicles charged, business trips that — strictly speaking — aren’t necessary to the daily running of the business, special life insurance policies and other benefits that a new owner may already have in place under different circumstances. Expenses like club dues and memberships, while representing legitimate business expenses, may not necessarily be assumed by the new owner.
New owner transition
Give some thought to how you would help new owners survive and thrive in their transition to take over your business. Identify the period of time you’d be willing to be available in person to help the new owners during the transition, and consider how long it would be reasonable to give telephone support thereafter. Remember, no matter how well you know your business, a potential buyer may find it daunting to take over your business if they feel that the switchover support will be less than adequate.
Property insurance
Review your insurance policies with your licensed insurance agent. Make certain you have adequate coverage for your equipment, inventory, building, employees, liability, workers’ comp, and the like. An improperly insured business not only poses a potential threat to the existing owner, but it may raise substantial concerns for a prospective buyer who may be reviewing your business. The accurate cost of insurance is one of the costs that will fit into the calculations of the potential buyer.
Health insurance and pension plans
Review any health insurance policies, pensions, and other benefits that the new owner will assume. These can sometimes contain “poison pills” that will be a turnoff to potential buyers. If you sell the business, will there be some amount due to the benefit plan in place? Will this have to come out of your sales proceeds? Is the new owner under a similar obligation? All of these answers should be in place before putting the business up for sale
The process of putting a business up for sale, preparing the offer and meeting with potential buyers can be a lengthy and complex one. The more issues and questions there are resolved in advance, the smoother and faster the process will be.
Lawrie Hollingsworth is president and founder of two national disaster recovery and response services and engineering consulting companies specializing in insurance property claims, disaster recovery, certified equipment appraisal, expert witness work and litigation support. Contact her at l.hollingsworth@pricehollingsworth.com.
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