It’s the dream of every small business owner: selling a business someday for a tidy profit. Making that dream a reality takes time and effort.
Here are 15 ways to make your business attractive to potential buyers.
Show a consistent profit
Most buyers seek a business that has been profitable for at least two or three years. Let’s say that three years ago your business had a great year. Two years ago you lost money. And last year’s profits were only mediocre. A prospective buyer is likely to feel uneasy about what the future holds. In that situation, it makes sense to delay selling while you work on producing solid profits.
Resolve outstanding legal problems
No potential buyer will want to face lawsuits by unhappy customers or disgruntled employees. So if you’ve been receiving demand letters from an angry employee you recently fired, resolve the problem now.
Demonstrate that accounts receivable can be collected
You may want to include your accounts receivable in the sale. If so, you’ll need to show they are collectable. Begin by putting together an aging chart that shows how long the bills have been outstanding — 30, 60 or 90 days. Eliminate any dicey accounts by settling with the slow pays and writing off the deadbeats. The accounts that remain should have a long record of timely payment.
Clearly explain your business finances
Your accounting protocol should be consistent from year to year. Income, costs, and cash flow should be self-evident. A shoebox full of check stubs and deposit slips won’t do the trick — nor will profits manufactured by questionable or overly aggressive accounting tactics.
Provide a convincing business plan for the future
The buyer will want to build on what you’ve done in the past and hopefully do it even better. A business plan can fire the buyer’s imagination with specific ideas on where to go from here. You need one that looks ahead to a time when you’re no longer in charge. It can keep the buyer’s enthusiasm alive during the nervous days before closing when buyers can get cold feet.
Secure beneficial relationships
Good ongoing relationships with customers and suppliers can impress a buyer. But unless you can point to solid contracts, a buyer may worry that these relationships are personal to the seller and not easily transferable. If you can position the business’ success as being independent of you personally, you’ll get a better price.
Show experienced employees will stay on
Able employees can be a strong selling point. Consider offering employment contracts that commit key people to work for the business for at least a couple more years. You can also include a covenant not to compete. This can help further reassure the buyer that your key employees won’t start working for a competing business.
Lock in your lease
The security of being able to operate the business from its current location can be crucial to selling your business. The buyer may want to lock in a lease for several years. If you rent from month to month, or your lease is running out soon, negotiate with the landlord for a long-term lease. Make sure the lease will remain in effect even if you sell the business.
Disclose all relevant facts
The buyer wants to be able to trust you, so disclose even negative facts. It’s a mistake to leave it to the buyer to discover negative information about your business. If an exclusive contract with a major supplier is about to end, let the buyer know.
Spruce up your premises
Apply a fresh coat of paint. Fix broken windows and cracked tile. Get rid of clutter.
Make upgrades and repairs
Maybe it’s time to install better lighting or signage, replace old carpets, and buy new workstations. If needed repairs are the landlord’s responsibility, insist the work get done to your satisfaction.
Get your inventory in shape
If you have a retail or wholesale business, sell or dump all stuff that you’ll never sell for a decent price. A buyer doesn’t want to pay good money for inventory that can’t be sold short of the local flea market.
Make sure equipment works
Repair or replace equipment that’s not performing optimally. This especially applies to computer equipment or software that may have become obsolete. When you demonstrate your technology to a buyer, you want it to work the first time, every time.
Provide a clear picture of how you get compensated
You may receive a salary, bonus, fringe benefits — or all of these things. Of course, you’ll inform buyers about these forms of compensation. But also be able to list all non-cash perks, such as business-related travel and entertainment, or a business car that’s tax deductible.
Have a believable explanation of why you’re selling
Few business owners just walk away from a profitable business that promises a prosperous future. Be able to convince the buyer you’re selling for a good reason. Examples include retirement, starting a new career, relocating with a spouse who has a new job, or going back to school.
