Here are the steps to take before looking for a buyer.
It is estimated that millions of baby boomers will try to sell a business over the next decade. From Mom and Pop shops to multi-million-dollar corporations, the steps taken to turn your business into cash are very similar. If you feel that your business is simply too small to follow this outline, you may be right. But even the small business can follow these steps to possibly find a better buyer.
The first step is to have quality financial records. Financial statements that are either audited or reviewed by an independent firm will be better than just copies of tax returns. The financial statements will be prepared using Generally Accepted Accounting Principles and be comparable year over year. If you are counting on undocumented cash receipts adding to the value of your business, guess again. You’d be better off coming clean with that revenue and showing it on your statements and tax returns. It’ll improve the selling price and keep your integrity as a nonissue for any potential buyers.
You may want to re-cast your profit and loss statement to eliminate costs and expenses that would end in your absence. That may include a car or two, or other expenses that the business would not incur if you weren’t carrying the company card around.
Clean up your personnel files. Having comprehensive personnel files can make a potential new owner more comfortable with the relationships you have with your employees. Good personnel files will include salary history, job description(s), evidence of employee reviews and any disciplinary action.
Create an organizational chart showing who is significant to operations. It is best if you have detailed job descriptions for everyone on this chart. If you feel that your employees are key to selling the business, you should take some of the essential people under your wing and make them aware of your intentions. You can give them bonuses to help complete the transaction and even for staying on with the new owner to the extent that it helps your selling price.
Get an independent valuation and have an idea what an independent third party thinks your business is worth. Some business brokers or investment bankers have valuation services that are independent of them selling the business. In fact, a good firm will not only value your business today, they’ll tell you the things you can do, specific to your business, that may help to increase the sale price when it is time to sell.
Ensure that you are well prepared in case you don’t make it to the finish line. Just because you become disabled or pass away prematurely doesn’t mean your business has no value. If you have a solid succession agreement with your staff detailing who does what, and what’s in it for them, even bad health or early demise won’t completely derail a sale.