Selling your business is a major milestone. If you're not well prepared, it can mean extra work, emotional stress and a reduced price. No one needs that!
So, how do you keep the stress levels down and the purchase price up? A systematic approach makes all the difference. Take time to get your financial records in order, update your business plan and make sure everything is well documented.
When you prepare your business for sale, you're really setting out to show your business can succeed without you – that's what makes it attractive to a buyer. You may have to step back from the day-to-day tasks to prepare well. Think of this as both a test and a proof point. You'll need to make sure everything is running smoothly, and you can show a good trajectory.
Ensure your financial records are in order as the first step in getting your business ready for selling
Up-to-date figures are essential in showing the value of your business. Buyers will want to review profit and loss statements, balance sheets, banking, cashbooks, financial accounts, and GST returns. They'll also expect to see history from the last five years or so, and projections for the next couple.
Work with an accountant and arrange a full audit of your financials. This will show you any problems that need fixing, and you'll be able to answer any questions from future buyers confidently. Your accountant can also help you 'normalise' your books ready for review.
- Explain any abnormal or non-reoccurring costs
- Show any drawings, including stock
- Remove any discretionary expenses such as memberships, travel, and conferences
- Reduce obligations to long-term projects
A realistic financial forecast can help your sale negotiations. You want to give an accurate picture of potential profits – not an exaggerated one. Don't be tempted! Potential buyers will bring their own experience and advisers. If they sense any lack of transparency, they'll see your business as a riskier investment.
Write up your business plan to show where your business is headed
Your business plan tells potential buyers about the direction of your business. Showing the opportunity for growth will add further value to the purchase price. Consider your timeline for marketing and selling your business too.
Your business plan should cover all the key parts of your business. This includes the management structure, operational workings, and marketing strategies. Your plan should also name risks, opportunities, threats, and weaknesses. A good place to start is with our blog on writing a business plan.
Sort out systems, suppliers, staff, and the 'stuff' in your head
Businesses often evolve through the expertise and relationships of people within them. One of the biggest parts of preparing your business for sale is to show that the value you've added will remain even when you've moved on.
Documenting your systems and processes shows the value is in your business, not your head. Your business plan will show what makes your product or service special. Look at each of the steps involved in making that happen. Where you can, write up the processes concisely and collect relevant standards or handbooks.
If you have a team of people, a prospective buyer will want to know they have the right skills – and the proper paperwork. You should have employment agreements in place.
Securing your suppliers is an important step. If you've negotiated special pricing or custom services, make sure there are contracts in place. Leases on premises can be a deal-breaker in business sales. Make sure you know whether leases can continue or if a new owner would need to renegotiate.
Finally, all the other 'stuff' that's in your head needs to be written down. Examples may be health and safety processes, things you do for quality control or upcoming regulatory changes.
You don't have to do it alone
A business mentor can offer valuable insights at every stage of a business, including preparing for sale. You’ll need to do a good job of updating your financials, reviewing your business plan, and documenting other key details. Outside guidance can be a big help! Our service will match you with a person who is ready to share their experience and knowledge. All you need to do is contact us at www.businessmentors.org.nz.