How To Prepare For A Business Sale

As business owners, you have put tremendous effort into building a profitable business overcoming obstacles, competition, pandemics and changes in your market.  It is fair to say that you are the expert in your respective business.  Eventually, there comes a time when owners want to sell their business and generally need assistance.  The challenges of selling a business can be a complex process, but with proper preparation, you can increase the chances of a successful outcome and maximize the potential of the sale.

Selling a business is not generally an overnight transaction and requires advance planning and commitment by the owner.  There are 3 key steps you can take to prepare your business for sale. 

The first key step is to make sure your business is ready for sale.  This includes getting your financials in order including accurate financial statements, such as balance sheets and profit and loss statements, and making sure that your bookkeeping is up to date.   It is also important to review and update your legal documentation to make sure that all of your business’s legal documents, such as contracts, licenses, and permits, are up to date and in good standing.  Spent appropriate time reviewing and improving any processes or systems that are in disarray and addressing any operational inefficiencies. The goal is to make your business as attractive as possible to potential buyers.  Additionally, identify and address any potential liabilities in advance that could include anything from employee relations issues to outstanding lawsuits. Addressing these issues before a sale can help minimize the risk of legal or financial problems arising after the sale has taken place.

Overall, look for other ways to enhance the value of your business, such as implementing a management structure with a clear #2 manager.  This allows buyers to have confidence in the transition period and the business ability to sustain itself.  Explore expanding your customer base even if it will require future investment as this will signal growth opportunity and additional value for your business. The more valuable your business appears to potential buyers, the more likely you are to receive favorable offers.

The second key step is to choose the right transaction advisor. Working with a business broker, or mergers and acquisitions advisor will help you navigate the sale process. They can provide valuable guidance and help you achieve the best possible outcome.  A qualified broker or advisor will help you with all the critical steps to achieve your goals.

1. Fair Market Valuation of The Business:  The advisor should work with you to assemble all the proper documents to receive a professional certified valuation of your business.  This will includes assembling a recasting of your financials to capture all the specific nuances of your business profile and to determine the true cash flow.  A common misconception is for the seller to believe their accountant should handle this stage.  However, there are two challenges with this approach.  First, the CPA is not viewed as independent by investors and lenders.  Second, their approach may not capture the true cash flow or real value of the business unless their firm is an accredited valuation company.
2. Prepare a Confidential Memorandum: This is a document that provides potential buyers with an overview of your business, including its financials, products or services, market position, and future growth potential.

3. Marketing your business: This includes identifying potential buyers and reaching out to them through various marketing channels including their own databases and online platforms. Make sure your broker or advisor is willing to invest their time and money in this phase to attract the largest group of buyers.  Ensure all buyers are qualified and under strict confidentiality to protect your business.
4. Negotiate the terms of the sale: Once a potential buyer has expressed interest in your business, you will need assistance to negotiate the terms of the sale. This includes determining the purchase price, payment terms, deal structure and any contingencies or conditions that must be met before the sale can be completed. Ensure that your advisor utilizes a proper offer to purchase framework to capture all critical information and minimize legal fees in development of the final agreement. 
5. Prepare for due diligence: Due diligence is an important step in the sales process and involves potential buyers thoroughly reviewing all aspects of your business, including financials, operations, and legal issues. A sound broker or advisor will assist you throughout the entire due diligence process by make sure all necessary documents, such as contracts, financial statements, and tax returns, are being sent to the buyers and their team.
6. Close the sale: Once all of the terms have been agreed upon, your advisor should help your coordinate with both your and the buyer’s attorney and if necessary, the buyers bank financing so you can proceed with closing the sale. This typically involves signing a purchase agreement and transferring your ownership of the business to the new owner similar to the sale of a house.

The third key step is how to manage through the entire transaction process.  It is best to create a realistic timeline for the sale of your business that takes into account the steps involved, including valuation, marketing, buyer qualification / negotiation, due diligence, and closing. This can help you stay on track, and keep the stress level down during the process.  Discuss your expectations and get aligned with your broker/ advisor as each business sale can follow a different timeline based on its business profile.  Selling a business is time consuming task and leveraging your broker/ advisor’s expertise thru the process will allow you to focus on running your business.  It’s critical for every seller is to keep their business flourishing during the process.  Buyers will pay particular attention to the business recent results and it can positively or negatively impact buyer interest or the terms in the offer to purchase.  Don’t take the foot of the pedal. 

Lastly, spend the time upfront to plan for your future. Having a plan in place can help you stay focused and motivated throughout the sales process.  Consider what you want to do after the sale of your business. This includes discussing upfront with your broker / advisor your objectives you’re your involvement in the transition of the business.  Many sellers, after completely the required few months transition with the new owner, have an interest in staying on as a consultant for a period of time.  Depending on the situation, many buyers will welcome a year or two of your help in keep the business on trend.  By following these three steps, you will increase the chances of a successful business sale and help ensure that you get the best possible outcome. Contact Achim Neumann if you are interested in selling or buying a business.

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About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process ­for the past 20 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed thousands of business valuations and deal closings in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732.872.6777 or Info@NeumannAssociates.com