How Well You Run Your Business

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Whether you're planning to sell your business in the near future or many years down the road, one of the most important rules to remember is the better care you have taken of the business, the more easily you'll be able to sell it.

This rule might seem like a no brainer, but it's very common for owners to focus so much on certain areas of the business that they neglect others, ultimately complicating the selling process when it comes time to leave the business. When someone is looking to purchase a business, they want to know that it has been properly run by its previous owner and will allow them the greatest chance for success.

There are a few key considerations business owners should keep top of mind at all times in order to help ensure the process will go as smoothly as possible when it's necessary to leave. Whether an owner plans to sell the business in one year or doesn't plan to sell it for a long time, addressing the following questions and actively making improvements where needed can pay off in spades when the time comes to put the business on the market.

Are Your Financials in Order?

 

Poor internal bookkeeping has been the downfall of many potential business sales. There is perhaps no bigger deal killer than when a potential buyer realizes that the owner has been disorganized keeping up the books and has no concrete way to prove the business's profitability. It's crucial to remember that if you can't accurately measure the financial strengths of your business, there's no way for a buyer to value it.

If you've neglected keeping proper track of financials, you can't start soon enough - even if you don't plan to sell your business for many years. It might seem like too big of a money or time investment to obtain the proper financial staff and systems to keep the books in order, but it's absolutely essential to your future and the future of your business.

Have You Laid Out Future Goals in a Business Plan?

Believe it or not, many businesses operate for years without a clear business plan, which makes it very difficult to sell when the time comes. Simply doing more of what you have been doing all along might have worked for you during your time as the business's owner, but that "strategy" will be of little help to a buyer who would take over the business with little knowledge of what you've done in the past. This is why it's important to develop a clear strategic plan that outlines the future goals of the business before you enter into the selling process.

This plan should include financial projections that prove to the buyer you are confident about the business's potential for growth and aren't attempting to hide anything. It's also important to communicate this plan throughout your business so that your employees can help transform these goals into reality and have a solid direction to follow after you're gone.

Have You Kept Your Business Up to Date?

In a business for sale transaction, physical appearance and condition can mean the world.
Oftentimes, owners are so busy and focused on other areas of their business that they neglect making important upgrades. They might not notice any detrimental effects from this while they're in charge, but once they try to sell the and realize that most buyers aren't eager to take over a business that is out of date, they'll regret not making these improvements along the way. For this reason, it's imperative to make any necessary upgrades or physical improvements to your business before putting it on the market.

Is Your Business Enabled to Run Without You?

It's important for a business owner to be actively in charge and to be invested in its success, but if you've run your business in a way that means it can't survive without you, problems are bound to arise when it's time to sell.

Buyers are typically wary of purchasing businesses in which the owners are indispensable and will have to maintain long term attachment. Owners who are committed to staying with the business can easily change their minds after the sale, leaving their buyers in a precarious situation.

To avoid this problem, make sure to hire and train qualified managers who are equipped to run the business even when you're not around. If necessary, seek the guidance of other business owners who have succeeded in making their businesses self sufficient and are willing to offer advice. This can be challenging, but you'll thank yourself for having done it when the time comes to sell.

Is Your Business Attractive to Business Supervisor?

Most business owners choose to work with a business supervisor when selling, as supervisors can often increase the chances of a successful sale as well as the net proceeds to the seller. To reap the benefits of these services, though, your business must be properly prepared.

The world of business supervisors is comparable to any other service profession in that there are a few select companies whose calls are always answered by potential business buyers because they can pick and choose among the best companies to sell. These business supervisors can be selective, so unless you have an attractive business without major "impairments" (which essentially means your business will be flagged as a risky investment), you might have a tough time attracting reputable assistance when you're ready to sell.

Selling your business might be a once in a lifetime experience for you, but supervisors do it for a living and are able to assess your business and determine whether or not they can find qualified buyers. The best business supervisors probably won't want to waste their time on businesses they know will be a headache to sell, so businesses that are in solid financial and operational shape will have the greatest success.

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Plan Ahead and Avoid These Four Common Mistakes of Selling Business

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If you are looking to sell your business, chances are you are not alone. Now a latent supply of owners who were waiting for their business to become profitable again are beginning to emerge and are looking to sell. This influx of sellers can result in a crowded marketplace, which means sellers have to be on top of their game to get the best price for their business.

As a rule of thumb, the best businesses command the best valuations, no matter how crowded the marketplace. But with competitive pressure from other sellers, there is little room for mistakes. This guide will help you avoid common mistakes that can derail a business sale.

Mistake 1: Not Properly Preparing Your Business for Sale

 

Before buyers sign on the dotted line, they will research your business as they would any other big purchase. Sellers need to be prepared to demonstrate that the worth of their business matches the selling price. This means keeping your financial records in order. Good record keeping is a simple way to establish buyer trust.

Be sure to resolve any outstanding issues that could derail a sale, like legal issues or unfilled key management positions. If your business is struggling, focus your efforts on restoring it to profitability and constructing a plan for continued success. A detailed strategy can give you a much higher chance of attracting the right buyer and making a sale happen.

Just as important as the paperwork, don't forget the physical elements of your business as well. Consider upgrading technology, establishing and documenting key processes and even sprucing up your interior - the physical appearance of your business is often the first impression the buyer gets, so make sure it's a positive one.

Mistake 2: Not Understanding the Market

Selling at the right time and for the right price is much easier said than done. It is important to work with your business supervisor to grasp the current state of the market and what that means for the sale of your business. It is important to price it appropriately. The goal is to set a price that will attract a number of serious buyers and yet allow you to close the deal at the highest possible sales price.

To properly price your business, you will need to know where it stands in the market as compared to others. So, work with your business supervisor and conduct some research to determine where your business stands in the current marketplace, and then price accordingly. Business owners who plan ahead and take the time to research the market will stand out from competition, thus resulting in more offers and a heftier sale price in the end.

Mistake 3: Not Getting the Word Out

With more businesses coming on the market this year, it's important to get the word out and market the sale broadly to attract the greatest number of potential buyers. Listing online can help in this endeavor, allowing more potential buyers to see your listing and generating greater demand from potential buyers. The more buyers that know about your business, the more offers you are likely to get.

Higher demand for your business translates to a higher sales price, so the goal is to create a multiple buyer situation. Don't limit your focus to just one or two potential buyers or the first buyer to make an offer. Instead talk to multiple qualified prospects at the same time to continue generating a sense of urgency and demand for your business. Also, speaking with multiple buyers can help generate a backup plan in the event that the primary buyer is forced to withdraw from the sale.

Mistake 4: Not Offering Seller Financing

To close a sale in this economy, business buyers and/or their lenders are almost certainly going to require some form of financing to purchase a business. While lending from local and national banks continues to loosen, the progress is still slow, and most banks require seller financing as part of any deal they fund. This means you will be required to take a minimum of 30 percent of the sale price in the form of a note that the buyer will pay back over time, with interest. Essentially, you still have an investment in the business even after the sale, meaning you are expected to participate in a successful transition to the new owner.

This confidence and willingness to invest in your business even after a sale will encourage potential buyers, and their lenders. Furthermore, it will help you close your sale and ensure the new owner's success, maximizing the chance they will be able to complete their long term payments.

Selling a Business is All About Timing

There's a fine line between fetching the best price for your business in a market uptick, and being slightly early or a bit late. To get the best price for your business, it's imperative to prepare, so that when market conditions are ideal, you can strike.

When it comes time to exit a business, the goal of every seller is simply to get the best price. But with the economy still in flux, the question owners must be selling themselves is: When is the right time to get the best price? The fact is that while the economy has been slowing improving recently, businesses might not be able to fetch their peak price just yet.

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But things can change quickly in the business for sale marketplace. We've been seeing an uptick in sales recently as business owners grow more confident in the economy. For those who have been considering a sale, the time to earn that top selling price may be coming soon. That means now is the time to start preparing your business to impress prospective buyers.

Preparing to sell means building upon your strengths and fixing weaknesses so you can secure the best possible purchase price. Above all, make the transaction process easy for the buyer. This means being honest about your motives, expectations and business difficulties. Also, identify common buyer desires and concerns, while maintaining an open minded attitude. This will ultimately put potential buyers at ease with the critical purchasing decision.

Presently, buyers are encouraged to buy because many eager sellers are willing to negotiate the selling price, but it's essential to make sure that the willing buyer is the right fit for your company. Therefore, business owners must decide whether or not they are willing to potentially take a much lower price for their business. Although there is a smaller supply of businesses for sale, this is not to say that all business owners can't command good prices.

It turns out many of the essential business practices you've used to grow your business are also essential to selling your company. This often involves many aspects, including outlining the financial history and outlook for your business; improving the bottom line; overcoming any financial problems and preparing financial records for review by prospective buyers.

This also includes making sure to outline all of your assets (both tangible and intangible), lease conditions and debts both owed by and to you. If you haven't been diligent about keeping the books in a condition that will be easy for a buyer to understand, start doing that now.

Business buyers also want to know that they will have support from an existing workforce that is familiar with the business, its primary needs and existing customers. The employees you leave behind will ultimately help you sell the business. If possible, find an appropriate time to make sure all customers and employees know of the impending sale, but be careful about relaying the information too soon.

The last thing you want is a lack of motivation or loyalty because they know you will be leaving. Maintain the relationships to ensure their transition will be as smooth as the new owner's.

Other pitfalls to avoid include not showing the potential buyer a loyal client base; Exposing the buyer to customers who expects special treatment; and clients who have verbal agreements and contracts with you. It's important to provide the owner with this information and to examine contracts with suppliers to ensure the terms will not expire or need to be revisited when the new owner takes over.

Potential buyers won't be interested in a business that lacks a loyal client base or forces them to recover from damaging press. Happy customers are your best advertising. Conversely, one extremely unhappy customer will likely make ten other individuals turn against you, so combat criticism by being honest and communicative with clients.

One of the cheapest ways to get some loyal followers is by word of mouth. Besides one on one interaction, extend yourself online; correspond with customers via online social networks like Twitter to answer questions and talk about new business initiatives or products. It will show that your business is ahead of the curve in recognizing the importance of the digital channel.

Businesses with well known names, strong marketing and a well executed online presence will ensure a buyer that your business is staying current with the market trends. Because, in some business categories, 90 percent of initial buyer interest stems from the Internet, how well your web site functions, its content quality and the appearance will all give a buyer a first impression of your business.

Also, make sure your web platform is simple to navigate so the new owner can update it accordingly. Speaking at the local Chamber of Commerce and continuing to explore new avenues of advertising are still things you can do to build your brand offline.

A final component in the selling process to consider is whether or not to use business supervisor to ensure that your sale goes smoothly. Attorneys can assist you during the selling process by providing critical services such as preparing detailed contracts to finalize the sale or creating confidentiality agreements which safeguard against potential buyers revealing what they uncover through the due diligence process.

Why Now is the Time to Prepare the Sale of Your Business

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According to many experts, the time to begin preparing to sell your business is now. The sheer volume of businesses that will appear on the market over the next several years means that buyers will be presented with more options and more purchasing opportunities. The owners who will receive top dollar for their companies are the ones who have invested the time and energy to make their business stand out in the crowd.

Sellers must intensely focus on building value by optimizing the key drivers of the business. It is critical to continue to grow the business even after the decision has been made to sell the business.

What Needs to be in Place to Sell a Business

To sell a business, owners need to see their company through the eyes of a prospective buyer. It is impossible to begin the process of preparing your business for sale and positioning it in the marketplace until you understand what buyers want in a business.

Like most investors, buyers of businesses are risk averse. They are looking for a sure thing – or at least a business that appears to be closer to a sure thing than the other businesses on the market. In addition to a fair price, business buyers are interested in companies that have proven track records, are easy to operate, and can be relied upon for profitability and future growth.

Keep in mind that (just like you); buyers want to earn enough profit to make a living from your company – immediately. If buyers are told that they will need to increase sales, reduce expenses or completely restructure the company to do so, their interest in your business will quickly wane.

At the same time, buyers are on the alert for red flags that could translate into problems after the sale. Much of the preparation process involves systematically removing these red flags in order to make your company as appealing as possible to the marketplace.

Starting right now, you can begin to address several obstacles that often present a challenge to a smooth selling experience – regardless of when you plan to put your business on the market.

Inadequate Financial Documentation

Financial records are one of the primary tools buyers rely on to assess the health and viability of a business. In many cases, they can also be a crucial part of the valuation process. In today's business market, computer based accounting systems are the norm. If you haven't done so already, start transitioning your books to an electronic recordkeeping system and contract for an outside review of your company's financials with an established accounting firm.

Lack of Adequate Cash Flow

Not surprisingly, cash flow is another key factor for buyers. For most small business owners, cash flow is the number one measure that determines if a business can meet their lifestyle needs. A company that is incapable of demonstrating a plan for continuing profitability and cash flow quickly loses its luster in the eyes of the marketplace – even if your business has a history of healthy bottom lines.

Be prepared to offer buyers a trend of profitability and cash flow improvement as well as solid reasons why you expect that trend to continue for the next several years. If your company is currently not performing in the black, make hard decisions and do what needs to be done in order to return the business to profitability as soon as possible. 

Staffing Problems

Many business owners enjoy a special relationship with their employees. Buyers, however, are less concerned about your relationship with your employees and more concerned about your staff's ability to function at the highest levels, especially after you've moved on. Like it or not, concerns for your employees will ultimately need to take a back seat to the selling process itself.

If your workforce needs to be resized or reallocated, do it now and create a professional staff that will be a selling point for buyers. In addition, make sure you have a continuity plan in place that will ensure that key employees can be retained to help run the business for the new owner.

Lease Issues

Time and time again, I have seen lease issues bring an otherwise smooth sale to a grinding halt. With some exceptions, buyers envision themselves operating your business at its current location well into the foreseeable future. If the lease is scheduled to expire in a year or two, the new owner could renegotiate a longer lease with the landlord after the sale.

But without any guarantees, a lot of buyers will hesitate or focus their attention on businesses with more secure space. To prevent this scenario from unraveling, proactively address lease issues now by negotiating with your landlord to secure an option to extend the lease with favorable terms for the buyer.

Although the process of preparing your business for sale may seem overwhelming, the preparation process can improve your company. The bottom line is simple. Regardless of when you plan to sell your business, now is the time to start preparing your business for sale. Your business' current performance will improve and you will position yourself to achieve your sale goals when your business ultimately hits the market.