The 12 Days of Christmas: A Guide, Preparing to sell in 2020 or 2021
As you are sipping holiday eggnog by the freshly stoked fire, surrounded by friends and family, you realize just how much you are truly thankful for.
As an entrepreneur, your business took you through some of life’s hardest times, but that same business allowed you the financial security that was able to support you and your family, as well as that trip to Aruba last year.
Over dinner, an honest relative asks about your plans for the business and what your succession plan is. Sure, you thought about this once or twice, but never too seriously. However, you begin to realize that given your age, the inevitable health concerns as you grow older, and the limited time left to spend cherished moments with family such as this, perhaps the coming year may be the most opportune time to transition your business to new ownership.
It is optional (although not recommended!) to sing the following 12 recommendations to the tune of The 12 Days of Christmas, but as your holiday cookies finish baking, consider reading these pointers to ensure your business is ready for sale in 2020:
1. Establish Advisor Relationships Early – Strong service providers can add substantial value to a sale process. In theory, they should pay for themselves. Create relationships with an experienced business broker today.
2. Obtain a Business Valuation – Just because someone you know sold their business in a similar industry for $5 million does not mean yours will fetch the same. You need to seek out expert advice, typically from a broker, to help give you a better understanding of what your business is worth.
3. Tidy Up Your Books – Buyers evaluating your business generally require at least 3-5 years of financial information. The more formal and organized your statements, the better the impression you will make and the easier the due diligence will be for a potential buyer. Having tax returns alongside financial statements is considered optimal.
4. Understand the True Profitability of Your Business – Most privately held businesses claim a variety of non-operational expenses. Make sure you have supporting documentation for these expenses. It is crucial that you have strong financial statements and can readily present a clear and accurate picture of the financial health of your company to a prospective buyer.
5. Organize Legal Paperwork – Review your incorporation papers, permits, licensing agreements, leases, customer and vendor contracts, etc. Make sure you have them readily available, current, and in order.
6. Consider Management Succession – If you are absolutely vital to your business, who will a buyer be able to turn to for help running the business after you leave? You should have a succession plan in place before going to market.
7. Know Your Reason for Selling – Buyers are always curious as to why a seller wants to exit a business. (If it is so great, why are you leaving?) Be prepared to articulate your reasons.
8. Prepare a Growth Plan – While you may be ready to exit your business, show that it still has opportunities ahead into the future. Buyers do not want to buy a business that is ready to start a downward spiral or even plateau. Make sure you can credibly show 3-5 years of meaningful growth after the sale.
9. Prep Your Team Carefully – It is wise to keep the sale of your business quiet from the majority of your company, otherwise panic may set in and key employees may rush to find new jobs. Share your sale intentions with trusted, key staff and outside consultants only as necessary and only when the news is accompanied by a non-disclosure or confidentiality agreement.
10. Spruce Up the Place – Take an objective view of your business and get rid of the clutter. Organize, make it look attractive, and give it a curb appeal for any potential buyer that stops by. A potential buyer does not want to see a dysfunctional, unorganized ofﬁce. The look of a business goes a long way towards building a potential buyer’s conﬁdence that they are purchasing a well-managed business.
11. Understand Sale Timing and Expectations – You want to prepare for sale as early as possible, which will allow you to tackle the previous ten items in this list to make your business attractive to a potential buyer. Although the average length of sale of a small business is typically 6 to 9 months, keep in mind that in order to have a clean and efficient sale, you must prepare ahead of time and work diligently with your advisors.
12. Keep Grinding – Do not let your business performance decline because you are too focused on the sale of your business. This will only give buyers additional negotiating power to lower their offers. Instead, hit the gas and continue driving performance.
The bottom line is that selling a business is time consuming, but there are ways to ease sale procedures and maximize value for all shareholders. Remember, when preparing your business for sale, think like a prospective buyer. While it is possible to successfully sell your business on your own, hiring a business broker often guarantees a quick and painless sale.
Happy Holidays and best of luck to you and your business in 2020.
Sunbelt Business Advisors