How to prepare my business for sale in 15.5 steps

 

  • 1. Get in the right Mindset
  • 2. Write down why you’re selling this business
  • 3. Get your Financial House In Order
  • 4. Step up your marketing and Brand awareness
  • 5. Increase your Revenue
  • 6. Step out of your business
  • 7. Add Value and put together a value add report
  • 8. Put together a timeline 
  • 9. Go through all of your contracts(employee and customer)
  • 10. Should I Use a Broker?
  • 11. Upgrade your professionals (Accountant, Attorney, Business Broker)
  • 12. Create an Inventory and Asset List
  • 13. Value your business 
  • 14. Identify potential buyers
  • 15. Discuss a Tax Strategy
  • 15.5 Have a Plan for What to Do with the Money from the Sale

Deciding to sell your business is a big decision. A lot of thought and planning needs to go into this to maximize your outcome. Rushing to market and not preparing your business for sale will cost you thousands of dollars and may be the difference between actually selling and making money or walking away defeated and closing your company.

  1. Get in the right Mindset

No this is not me going all Wo Wo on you.  Most people don’t realize that coming to a decision to sell your business is a major life event.  Most of the time you have spent many years developing, building, and curating your business, and selling it is almost like selling a part of you.  So this decision can’t be taken lightly.  For me,  I knew I wanted to sell my wholesale bakery a few years prior to the actual listing of the business. 

 The 7 days a week 24 hours a day grind was wearing me down and I was missing a lot of precious time with my family.  So when I got diagnosed with cancer that was my cue to say I am going to sell it no matter what.  This determination is probably one of the most important factors in selling a small business.  The statistics are not on your side.  

According to the Exit Planning Institute only  20-30% of businesses that go to market actually sell. So if you are not ready for a bumpy ride you will quit and possibly shut your doors if you don’t sell right away or even worse become disinterested in your business and ride it until it destroys your financial situation. 

So a strong mindset is very important in both your decision to sell and the length of time it will take to actually get it sold. The average length of time it takes a business to sell after it has been listed is 171 days according to Biz Buy Sell.

    2. Write down why you’re selling this business

As I said in point #1 mindset is very important.  This is going to be a long argus process in most instances.  If you do not have a “Why” for selling your business you might fold under the pressure and either back out of a possible deal or quit together.  This is a very bad situation.  I have seen several friends and customers over the years decide to sell their business start the process and get smacked in the mouth with either delays or low offers or tire kicker-type buyers and just get frustrated and fold.  

Once this happens it is very difficult to then go back and run your business as if nothing happened.  In every situation, I saw the entrepreneur absolutely just give up.  Once this happened they were out of business within weeks.  Write down “why” you are selling.  Is it to retire, to start a new venture, to spend more time with your family, is it because you didn’t realize how hard it is to own a business and you are going to go back to the W-2 lifestyle?  

Whatever it is write it down and realize what you want your goal to be.  This way when things start getting tough or going sideways you can take out that piece of paper and reaffirm why you need to get this business sold. 

    3. Get your financial house in order.  

There is a lot to unpack here.  Not only do you need your financials to be easily understandable. They need to be put in the best light for a potential buyer to see the value in your company.  Make sure you are using reputable software to do your bookkeeping(Quickbook, Freshbooks, industry-specific software) back of the napkin or handwritten spreadsheets are not going to cut it. 

 

Also, you need to back out all of your discretionary spending and clean up any creative accounting that allows you to pay as little taxes as possible.  

Sit down with your accountant and explain to him you are selling your business and you need your financials to look as good as possible.  If your accountant looks at you and says I don’t understand what you want me to do then find another accountant.  A good accountant will understand that when you’re operating a business as a going concern they should be strategizing to keep your taxes as low as possible.  This means using depreciation and expenses to their maximum ability.  So the vacation you took with your family was actually a business expense because your family sits on your board of directors and you discussed business dealing while you were sitting by the pool. 

You visited other establishments similar to yours to get ideas to bring back to implement in your business. (by the way, this is all legal and you should be doing it if you own a business) This should be taken off your books to decrease expenses and increase profit. Same thing with your car you have the business paying for so forth and so on.  When you explain to your future buyer why your tax return doesn’t match your P&L you can walk them through this process and believe me they will understand.

    4. Step up your marketing and brand awareness. 

 This may seem counterintuitive.  I want to sell my business not work harder at it.  Well, in order to maximize your sale price you have to spruce up your brand because I’m going to bet you have let it go for the last few years if you are thinking of selling. 

 Even if you haven’t neglected your business increasing your marketing and getting your name out there will only help in the sale of the business.

    5. Increase your Revenues.  

Just like stepping up your marketing to get your name out there. Working to increase your revenues to show an uptick instead of a downtrend in your business will go a long way in increasing your sales price.  

 

Clear out old inventory maybe run that parking lot sale that you haven’t done in years.  Run a birthday special for people that have birthdays this month.  Do an employee incentive for new sales that are being brought in.

 

 All of these suggestions will bring life to your P&L and make your business that much more attractive. Making sure your business looks as good as possible in the buyer’s eyes is the difference between selling your business for life-changing money or just selling your assets.  I’m not just talking about putting lipstick on a pig.  If you want to go that route that’s your decision but it won’t maximize how much you will get at the closing table.

    6.  Step out of your business.  

Very few people want to buy a job.  99% of the time they want to buy an investment which means they don’t have to work in the business.  Most entrepreneurs are an intricate part of their business and it won’t run without them.  

 

This makes it a horrible business to be sold.  Transition yourself out of your everyday role.  This may mean you may have to hire someone for this position or you might be able to delegate these roles to already existing staff.  

 

Either way, it is super important you learn to operate your business with you running the shots not picking up the shovel.

    7.  Add Value and put together a value add report. 

Put yourself in the buyer’s shoes.  Would I want to buy this business the way it is right now?  If the answer is yes then by all means put it up for sale.  If the answer is no then what were the things you have not done or implemented that you know you should do?  For me, in our ice cream store, it was about bringing in a POS(point of sale) system and getting our processes down so almost anyone could run the store.  Did this cost me money? Yes, it was a few thousand dollars to bring in a great system. I knew two things.  If I was buying the store I would want hard numbers to know what the store’s revenue was. Also, I would want to make sure we could accept credit cards to maximize our potential customers and I would want an easy-to-follow system so the store would be easy to manage.  

As soon as I was positive that we wanted to sell I knew those things were important for a future buyer and would be a big part of getting the best price for the store.  I know you might be tired and at your wit’s end or just plain done with your business. This is the time that you have to take a look at your business as if you were just going into it and say to yourself, “ how would I like this business to look if I was going to buy it”?  You don’t have to spend tens of thousands of dollars renovating it but you might have to get dirty and paint the walls and spend time writing down your processes so if you weren’t there, someone could operate your business.  Most people or investors that are going to want your business don’t want to buy a job they want to buy a cash-positive asset.

 

As for the value add report. This could either be a full business plan explaining your whole strategy and how you plan on increasing business and taking over the competition.  It can be as simple as a one or two-page white paper on how if you were to continue to run your company what steps would you take to increase sales decrease expenses and basically make your company much better.  

 

Your goal is to point out to a potential buyer what additional value there is if you were to take it to the next level.

    8.  Put together a timeline. 

Start to map out your ideal timeline as to when you would like to have your business sold bye.  

It should look something like this.  I will take the next two weeks to go through all of my processes from opening the store to the daily operations to closing the store.  I will put that in an easy-to-read outline. 

  1. Have a meeting with the staff to discuss how I can transition to stepping out of the business by hiring or delegating work to existing employees with pay increases. 
  2. put together a new marketing plan to increase our social media presence and to increase our ad spend for mailers,
  3. run a 2-month advertising blitz to increase revenue. 
  4. call a vendor to bring in a new system or to upgrade our existing system so the business is easily trackable and easily managed within 30 days. 

    5.. I will reach out and make an appointment with each of my professionals to tell them we are going to be                selling our business and to listen and then possibly implement any suggestions they may have. 

  1. I will make a list of any person or other entrepreneurs who have ever shown an interest in buying my business.
  2. I will give myself two weeks to get all of my paperwork together which would include leases, agreements, contracts, employee contracts, and so on.
  3. I will take a weekend to sit down with my family and discuss what it would mean if we sell the business. 

Then once you have laid out all the things you have to do than come up with a time frame for when you want to list the business.  Will it be in 3 months or may it be in 3 years?  No matter how soon or how far away it is, have a time frame and stick to it.  This way you’re not doing the same thing everyone including me do for years.  When the business gets you down you start complaining and saying you have to get rid of this thing.  Decide you want to do it and work towards that goal.

    9.  Go through all of your contracts(employee and customer)

This is the time to get all of your contracts out and go over them one by one.  I would suggest you go over them with your attorney so they can advise you if any of the stipulations in any of your contracts will cause a problem with any interested buyer.  

These contracts can be with an employee, customer, or vendor.  It is better to find out at the beginning of this process if there will be a problem so you can get ahead of the problem rather than have an unforeseen issue come up during the Due Diligence period of a sale.

    10.  Should I Use a Broker?

 There are many factors to this.  If you are reading this you are likely an entrepreneur and as entrepreneurs, we always think we can do it ourselves, cheaper and better.  This may be true but it also may be very false.  I would encourage you to interview brokers.  If you are selling both your business and the property you may want to go with a commercial realtor.  

The problem with this is not all commercial realtors are savvy at selling a business. So call around and ask to speak with a broker that has sold both properties and businesses like yours.  Ask for specifics.  Where was it, what type of business was it, and how long ago was it?  If you are just selling your business you are most likely better off with a business broker, depending on the size of your business.  

Again I encourage you to call business brokers and talk to them about the potential of selling your business.  Don’t get discouraged if they tell you your business is too small.  There are always marketplaces in which you can list your business by yourself.

    11.  Interview and Upgrade your professionals (Accountant, Attorney, Business Broker, Financial Advisor)

You have made the decision to sell now you have to put your team together.  

Broker;  I did not hire a broker to sell the Wholesale Bakery because I had interviewed a few business brokers in years past and non of them really knew the Wholesale Baking Industry.  Since I knew I only had less than a year from the time I decided to sell and when I was going to go in for the major surgery I figured let me reach out to my competition and bakeries we were already working with.  I did use a Commercial broker to sell the property I owned that the bakery occupied. I also used a Broker to sell the land and the business for our ice cream store.  

 

I would suggest you speak with a business broker and hear them out.  Depending on your industry they can be a real source of information and if you like what you hear you should retain them.  This is a big process and having someone in your corner is a great thing.

 

Attorney;  No one likes dealing with attorneys, but they are a necessary evil in the sale of your business.  Make sure you retain an attorney that has done many deals your size.  So if your selling your business for 10k you don’t want a big M&A firm representing you.  On the flip side if you are selling your business for 400k or 4mil you want a firm that knows the M&A world.  In my instance of selling the bakery, I asked around and found a very reputable firm that specialized in business acquisitions.  I was not exactly happy about the amount of money I spent at first but it wound up being the best money I ever spent.  

I had problems after the business was sold and was able to settle quickly because my team wrote an ironclad contract.  In the instance of the ice cream store, I used a much less expensive local attorney that had done many smaller business sales.  This worked out great because this sale was much more straightforward.  So take your time vetting your attorney and don’t be afraid to ask them, for example, about deals they have done that are similar to your size deal.  Also, make sure you ask them what the final bill was for that particular client.

CPA;  In order to sell your business for the most money, it is imperative that you show the potential buyer how great your business is.  In the day-to-day running of your business, you want your CPA to assist you in being the most tax-advantaged as possible.  Having your finances in this matter does not always show well to potential buyers.  Most buyers want to see cash flow.  They want to know that if they buy your business is it going to throw off enough cash to sustain the business and give them a good return on their investment.  In order to show this, you need to sit with your accountant and go over your financials and take out all the fluff that might be on the books.  Ask your CPA if they have prepared the books for a company that was selling and find out if that company was sold successfully.  If they haven’t you may need to find a new CPA for this process.  

 

Financial Advisor;  This profession is a difficult one for me.  I truly believe most people need help from a financial advisor but since I have invested nearly my whole life doing it myself and 

saving thousands of dollars in fees it is hard to tell most people they should seek out a professional for this.  The reality is most people are not like me and don’t love to invest their own money and are extremely scared by it. Also even though I invest my own money I also have advisors that I can bounce ideas off of and guide me with complicated tax issues.  I use TD Ameritrade for most of my trades and Facet wealth for advice.  Facet wealth is a true fee-only advisor that does not take a percentage of your investments.  So no matter who you use you should definitely have a CFA in your corner.  Just make sure they guide you to the best investment, not the best one to line their pocket.

    12.  Create an Inventory and Asset List

These two lists are important. They can either be included in the sale or broken out as extras.  I included all the assets in my sale price and my inventory was determined just before we closed and was a separate check.  This is how I would suggest doing this unless you have one or many large pieces of equipment you want to break out of the sales price.  

With my wholesale bakery, I took out a large piece of equipment I knew the buyer was not going to use because he already had a similar piece of equipment.  I wound up selling this for tens of thousands of dollars separately from the business sale.  As for your inventory,  you really have no idea how much or how little you will have by the time you close so make sure this is a separate line item in your contract to be paid at closing.

    13.  Value your business

There are many ways to value a company.  If you hire a broker they will most likely give you a valuation report that their team will come up with.  Depending on how well they know your industry this report can be of great value or you can determine the report is incorrect because of any number of reasons.  The bottom line is your company will sell for what the market will bear.  

Do your own research.  Try to find out what your competition has sold for or similar business in an adjacent industry.  For example, if you are a Plumber and you have found out that a local electrician has sold for 3 times their revenue this is valuable information.  It’s not apples to apples but If you can’t find exact comparables you may have to rely on similar transactions for reference.  I am going to give you a few links to other articles that have discussed this subject in great detail.  Nerd Wallet Article, Forbes Article, BIZ BUY SELL Article.

    14.  Identify Potential Buyers

I am sure in the course of running your business you have heard “ whenever you sell this let me know” well my friend now is the time to let those people know.  Once you have gotten all of your ducks in a row and you have sat down with your professionals and have come up with a price.  

Before you list with a broker or you can list with a broker but give them a list of potential buyers that are excluded from your selling agreement. Then write those potential buyers an email or a letter explaining you are selling your business and if they are interested they can contact you to sign a non-disclosure letter and get the specifics of the sale.  

This letter will let them know that they can not share any of the information you give them with a third party or any other competitors.  If any of these individuals are your competition they may just be tire kickers just to find out information about your business.  Don’t let this discourage you from contacting them.  Remember you have a specific reason for selling and nothing is going to get in your way of making that come true. 

 Also if they are your competition and they do contact you about being interested in purchasing your business then in the sales sheet that you hand them once they sign your non-disclosure write exactly why they should buy you.  They will increase revenue they will lessen competition, they will combine workforces so on and so on.  They might have been tire kickers going into this but you should make them think about what they are missing out on if they don’t buy you.

    15.  Discuss a Tax Strategy

I put this as number 15 because I am talking about a tax strategy for the proceeds once you sell the business but this should also be one of the first things you discuss with your accountant and tax attorney before you sell.  The reason for this is what you sell for is not what you wind up with.  Our wonderful State and Federal governments will have their hands out looking for a portion of the money you will make on this sale.  This can be a large factor in both the selling price of the business and the decision to sell at all. 

If after paying your tax liability, it makes much more sense to continue to just operate your business, it is in your best interest to make that decision before you go down this arduous road. If you have made the decision to sell well knowing how much taxes you will pay now is the time to talk to your professionals about how to limit future taxes on the proceeds you will receive.  

Should you put the money in a trust? Should you set up a foundation with some of the money to give back? Are you selling property and should look into a 1031 exchange?  This should be a separate meeting with your tax professionals to come up with a plan for after the sale.

 

15.5 Have a Plan for What to Do with the Money from the Sale

You know the old saying “If you Fail to Plan then you are Planning to Fail”.  Don’t think about this after the fact.  Really have a good conversation with yourself and your significant other.  It really doesn’t matter if you walk away with 10k or 10 Million. You should have a plan for what to do with the money once it’s wired to your account.  

Sit down and list your goals and dreams.  Will you have enough to retire on? Are you going to start or buy another business?  How am I going to invest the money? I have another article on What to do with your money from the sale of your business.

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