Preparing to Sell Your Business

Thinking about selling your business? If so, take the following steps now to ensure that you get the most money possible for all your hard work and make the process as swift and painless as possible.

Keep good records: This is the first thing potential buyers and their advisors will want to see when buying or valuing your business. With today’s computer technologies and programs, you have no excuse not to have your business records completely automated. This way you can produce up-to-the-minute profit and loss statements and a current balance sheet. Any bank considering financing the acquisition of your business will look at three years of earnings to decide how much it can lend to the buyer. If the buyer cannot get enough money from a bank, you have two choices: Finance the sale yourself, or sell for less. Keep good records and you’ll be more likely to sell for a higher price.

Grow earnings: Up trends are very important. A buyer will value your business’s future earnings based on past results. If the numbers on the chart are rising, future earnings will have a growth trend, too, and the value will be higher. To grow earnings, implement a new marketing and advertising plan, hire those new salespeople, and get revenue moving. Don’t wait to sell when your business is tailing off.

Deposit all cash in the bank: Most buyers place a value only on revenue they can see. That means what’s in the bank and on the tax return. Yes, you will pay more in taxes today doing so, but you will get a multiple of that cash back when you sell.

Separate fringe benefits from real expenses: Only run legitimate expenses through the business. Rather than having to explain all the personal expenses you are paying through the business, just clean it up. A bank will not recognize these personal add-backs when considering a loan.
Put proper management and staff in place: A business run by family members will be difficult to transition to a new owner. Your best bet is to phase the family out and keep or hire staff that will stay on after the sale. Also, no buyer wants to work 60-plus hours a week. If you work that much, hire and train a manager you can delegate to before you try to sell.

Have room for growth: If your business facility is cramped or the business is limited by the current location and equipment, that ceiling of revenue and profit will be reflected in your valuation. Either sell before your business gets to this point, or buy needed equipment and move to a larger location before selling.

Keep your facility in good repair: Your business’s value will be higher if everything works and looks nice. Buyers will want everything in working order at the day of closing, even that old piece of equipment you don’t use anymore.

Control, manage, and document inventory: Don’t play with inventory as a tax-savings strategy. It will catch up with you someday, and you could face large tax consequences. Plus, you need to keep your inventory lean and moving. If it’s old, donate it or mark it down. Your balance sheet will shine, and so will your business ratios.

Once you’ve prepared your business for sale, you’ll need to decide how to sell the business and how to close the deal.

Peter Berg is managing director for Transworld Business Brokers in Fort Lauderdale, Florida.

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