How to Sell Your Small Business

Successfully selling a small business to an investor, group, or competitor in your industry requires preparation. Otherwise, your business will be less interesting to the potential buyer. Which means that you will struggle to find a buyer in the first place. If you do find a potential buyer, you might be dissatisfied with the purchase price. With a bit of preparation you can achieve both: Your business becomes more attractive to potential buyers and the purchase price will be higher. So, what do you need to consider?

What Buyers Want

Let’s look at what buyers look for. To do so, let’s categorize buyers into two categories. First there is the self-employed who is figuratively buying himself a job. Then there is the investor type. The investor might be an investment group or even a competitor looking to expand their portfolio. The investor is not buying himself a job, but he is looking to buy existing revenue. We will focus in the remaining text on the investor type.

Now we know one thing: the investor is usually looking for existing revenue to grow their market position. If there is one thing they don’t want when they are acquiring a business, it is one thing: headaches. What causes buyers to have headaches? Full-time involvement of the current owner, dreadful accounting, opaque contracts, tax avoidance schemes, non-transparent private spending out of the business, time-consuming requesting documents, and so forth.

So to find more suitable buyers, accelerate the selling process, and raising the purchase price you have to position your business in the best way possible – before you sell!

Preparing to Sell

If you plan to sell your company any time in the future, you should prepare well ahead. If you intend to possibly sell your business in 10 years, better prepare today. Act as if you are selling your business next month.

The best mindset to have is to always think of your business as a publicly traded company at anytime. So, what can you do to prepare today for tomorrow?

Become Redundant

As an owner, actively work on drawing out of all active business activities. You should be completely redundant in your business. If you decide to take a six-month holiday to cycle from Europe to Thailand, your business should run as smoothly or do even better than before you left. How do you become redundant? Don’t think of yourself as a self-employed or manager, rather think of yourself as the owner and leader. Promote good employees into managing positions. For example: for your local physical therapy practice, have a site director for administrative tasks and a therapy director who is responsible for all other physical therapists. Give them the autonomy to make decisions about the operating business themselves.

Clean Books

Keep your books spotless. This includes accounting but also all legal contracts with suppliers, strategic partners, employees, and so forth. Work closely with solid external partners for legal and financial topics. If you do the books internally, it will be best if you let an external accounting firm audit or finalize them.

Clean books also mean not to use any tax avoidance schemes or to hide private expenses. If you have private expenses, you pay them out of your personal bank account.

The Buyers-Kit

Always have a kit for all important information prepared – physically and electronically. This might be a ring binder or cloud folder with at least the following basic information:

  • A memorandum of your business: a 1-3 pager with a description and all relevant information regarding your business including the latest revenue, EBIT, and EBITDA figures, an overview over your employee count, etcetera
  • The full annual financial statements of the last three to five years (ideally audited, especially if your business is larger)
  • Ideally, all corresponding tax returns
  • A business activity statement of the present year (revenue and EBIT)

Ready to Sell

If you follow these tips, you will always be ready to sell. The buyer will have it much easier to understand and take over your business. Which will ultimately lead to a more effortless selling process, a shorter transition phase, a higher purchase price, and also safety for your employees.

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