What do you need to Prepare before Selling Your Business

Selling a business is a lot like selling your house – only lot more difficult and time consuming. It is not uncommon to take more than year to sell the business – from the time it is put on market to the time the closing papers are signed. Anyone who has been through the selling process knows that there are number of aspects you need to take care of long before the business is put for sale. What makes it more challenging is the fact that you need to do it all while running the day-to-day operations of the business and ensuring that it does not suffer during the selling process.
There are steps you can take to make the process of selling the business easier for you. They can also help make the sale go faster; which is very important for any seller. The longer it takes to sell the business, the more chances of something going wrong and the sale falling through.

In our view, the preparation to sell the business needs to start at least one year in advance. There are certain tasks that you need to start working on early on; while other tasks can wait to be completed 2-3 months before signing with the broker. In this post we will discuss the items you need to take care of 1 year in advance and the next post will discuss the items you can work on 2-3 months prior.

  1. Improve financial picture
    No buyer will want to buy a business where the revenue and profit have been declining and certainly not the one that shows the declining sales and profit in the last year. You need to ensure that sales and profit are improving over prior year. Even if it means spending money and time on marketing, so be it. This is not the time to slack off.
  2. Prepare financial statements
    We are amazed at how some of the business owners have no idea about the financial health of their business. While it may have been ok when you were the owner of the business the buyer will not pay without doing proper financial due diligence. They will ask for at least 3 years worth of financial records and tax returns. If you don’t have them start working on putting them together with the help of your accountant.
  3. Stay current on your bills, taxes and other liabilities
    The more current you are on your liabilities the more confidence the buyer will have on your business, resulting in faster sale.
  4. Review leases and supplier contracts
    Do you have real estate or equipment leases that prohibit you from transferring them to the buyer? Will your long-term supplier commitment raise red flags in buyer’s mind? Do any of the leases or contracts are coming up for renewal in the next year? These are not easy items to resolve. They take time; which is why it is important to start addressing them in advance.
  5. Document processes and employee records
    If you have owned the business for a long time you may not have all the processes documented in writing. You and employees understood how to take care of business. However, the buyer will feel more comfortable getting into unknown territory if you have documented the processes showing how things are done. Remember, the biggest obstacle in selling your business is buyer’s fear of unknown. The more documentation you can show the more comfortable he will feel.
  6. Review corporate structure, by-laws, etc.
    Do you have a type of corporate structure or by-laws that will create obstacles during closing process? Does your partnership agreement prohibit you from taking certain actions during the sale? Again, these issues will take long time to resolve. You want to take early lead on those.

Are there other items the business seller needs to take care of? What do you think?

Image Courtesy:   digallagher

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