I’ve sold two businesses. The first took six full months of hard work. The second took 30 days. I learned some valuable lessons from my first sale and vowed never to be as unprepared as I was that first time.
If you want to make it easy to sell your business, the core principle you need to remember is this: You should work every day to prepare your business for sale. Whether you have any intention of selling your company isn’t the point. The point is, preparing your business for sale long before you're actually ready to sell will both improve the health of your business as well as make it more appealing to prospective buyers. And it'll be ready to sell on short notice.
What nine steps can you take to get it ready?
1. Learn to recognize and identify strategic buyers. These are buyers who don’t necessarily want your bottom line—your revenue—but rather want something else. For instance, they may want your intellectual property or may need your key clients, but what sets them apart is that your business will be useful to their business’ success. The single most important reason you need to identify these buyers early is because you might need to get provisional patents on any relevant intellectual property or you may need to lock key customers down by getting them under contract. The key is to ensure that your business retains the features that attracted strategic buyers in the first place.
2. Settle any legal suits or liens. Buyers don't want businesses with unresolved legal issues. Clean up all these messes ahead of time, even if it means settling for less-than-ideal terms.
3. Focus on profitability rather than debt. Businesses are often valued based on a multiple of profit, rather than on debt, so it makes sense to boost your sales (and thereby increase your selling price). You have to be careful here, though: A smart buyer will exercise due diligence and look back at your business’s history, so taking out a massive loan to buy new equipment isn’t wise, but you might want to invest revenue in new equipment rather than paying down your debt.
4. Protect the positions of your linchpin employees. All businesses have key staff members—your go-to-in-a-clutch sales rep, your smooth-talking customer service manager, or your indispensable IT guy who keeps everything up and running. It’s important to discreetly cross train or plan a replacement for these positions should they leave before the sale is completed. Plan ahead to protect the value of what you’re selling.
5. Get out of the office. Hang up the phone and step away from your computer: You need to meet with clients face to face in order to get to know them and have them get to know you. They need to see you in person so they'll feel confident about the company they do business with. If you can sign them to long-term contracts, so much the better, but the important thing is to make sure that you’re available as the face of a successful business. One of the biggest mistakes you can make is to start slacking off after you have a prospective buyer on the line. Quite the opposite is true: You’ll need to work harder than ever to ensure that your buyer doesn’t lose interest and decide your company’s not worth it after all.
6. Cut costs. The goal here is to be as lean as possible to show a revenue trend that’s moving up. Carefully analyze all your expenses, and weed out the unnecessary ones. Also focus on paring back any expenses you can't cut. You want to do everything possible to increase profitability and make your business efficient. Prospective buyers won't t just be looking at a static set of figures—they’re also interested in seeing the movement in those figures to find out if the business is getting better or worse.
7. Reach out to a business broker or investment banker. If a broker has to help you prepare the business for sale, you can figure in another six months to a year for your timeline. But if you've already done everything possible to get your business ready to sell--by completing the first six steps on this list—you've cut your time to market. Once you're ready to see, a broker can provide an important service to you. They frequently keep a pool of buyers who are looking for a specific sort of business, and they may be able to connect you with folks who are looking to buy exactly what you’re selling.
8. Be the hard one to get. If your goal is to get top dollar for your business, you'll need to cultivate multiple buyers and create a demand for what you’re selling. Competition among buyers means a significantly higher profit for you.
9. Keep it on the down low. All the previous steps help you groom your company to be the healthiest and most attractive product possible. This step is perhaps the single most important, though. Keep it quiet! If you publicize that your business is for sale, you run the risk of losing key employees and clients. So only share the news on a need-to-know basis and tell people you don't want the information to be public knowledge.
The broad idea here is to keep your business healthy and to give yourself as many options as possible. Whether your long-term plan is to sell your business to the highest bidder and make a stack of cash to invest in your next brilliant idea or to turn the company over to your children some day, strategically implementing these recommendations will ensure the health and value of your business.
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