How to Sell Your Business: Critical Tips Owners Need to Know


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By Steve Williams CExP™, CMMA

There are two camps business owners find themselves in when they are selling their business:

  • I need to sell as soon as possible – owner has passed away, divorce, health issues, or liquidity events and
  • I don’t need to sell right away; I have the ability to take the time it takes to do it right in order to achieve my objectives.

This article is more for the latter, owners who can orchestrate a sale without any immediate time pressures. For this group, we focus on the argument that they need to prepare to sell their business very seriously. Preparation is key for owners to hit their valuation, timing and identifying the right buyer.

Here a couple of statistics that underline the importance of taking preparation seriously before selling your business:

Nearly 40% of business owners plan to exit their business in the next five years. There is currently an increasingly large number of companies for sale. Preparation before going to market with your business and a good exit strategy will help your business cut through the clutter and have buyers chasing you instead of you being one of the owners always trying to get attention from buyers.

Nearly 80% of a business owner’s net worth is tied up in their business. Selling your business the right way can be transformational for you and your family. A great, financially secure, happy retirement with a family legacy can be in store when you have taken the time to properly prepare for sale.

What Are the Top Tips When Preparing To Sell Your Business? 

Boost Your Business’s Market Value

Nurturing the market value of your business is critical when it comes to preparing for a sale. It’s not just about enhancing your ongoing profits but about building sustainable value in your company’s structure, systems, and reputation. There is no universal ‘right’ way of improving your market value, but there are key areas you should focus on to elevate your business’s appeal to potential buyers. 

Start by identifying your Unique Selling Proposition (USP). What is it that sets your business apart in a crowded market? This could be anything from a proprietary product or service to a solid client base, a strategic location, or a trusted, established brand. Acknowledging and emphasizing this USP in your business’s narrative could significantly boost its perceived market value. 

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Streamlining operations is another effective way to increase your business’s market value. This might involve implementing more efficient processes, investing in the latest technology, or reducing dependability on a few key clients or suppliers. A lean, well-structured, and independent company is generally perceived as a more valuable asset that is more likely to survive under new ownership. 

Finally, remember that your workforce is one of your most valuable assets. Treating your employees well, putting key individuals in equity positions (minority shareholders) and creating a positive workplace culture can pay off in the long run. A motivated, competent, and happy team not only increases productivity but also adds value in the eyes of potential buyers, who will value the smooth transition and established goodwill. 

In summary, boosting your business’s market value involves building on strengths, mitigating weaknesses, streamlining operations, and nurturing your workforce. All these factors can significantly improve your business’s attractiveness to potential buyers, ultimately enabling a quicker and more profitable sale.

Action Benefit Potential Impact
Building on strengths Improves overall performance and profitability Attracts potential buyers due to higher returns
Mitigating weaknesses Creates a more resilient and robust business model Inspires buyer confidence in the business’s future prospects
Streamlining operations Enhances efficiency and reduces unnecessary costs Adds to the business’s bottom line, making it more appealing for purchase

Effective Ways to Prepare Your Business for Sale

Proper financial documentation is crucial for potential buyers, as it provides a clear picture of the business’s financial health.

Keeping this in mind, it’s important to ensure that your business’s financial records are not only complete but also meticulously organized, easy to understand, devoid of non-business expenses, and reviewed by an accredited third party. Uniform financial statements with comprehensive details offer prospective buyers the peace of mind they need when considering investing in a business. 

This level of financial transparency makes your business more attractive to potential buyers, displaying your commitment to ethical and accurate bookkeeping practices and aiding buyers in their due diligence process. The value of the company can be dissected and analyzed, particularly when combined with justifiable and verifiable profit and loss statements. 

How can Can an Exit Planner Help

With these in place, potential buyers can confidently project the future revenue streams of your business, making it easier to determine its market value. Having up-to-date and detailed tax returns is equally essential. Like your financial statements, tax returns can validate your reported earnings and reassure potential buyers that the business is financially sound and law-abiding. 

Remember, preparing a business for sale is akin to staging a home for sale. Show off the best features and actively eliminate, or at least minimize, any potential liabilities, and you increase the odds of selling your business successfully.

Business Preparation Tasks Description
Strengthening customer relationships Consider customer retention strategies and work on building strong relationships with key clients to increase perceived value and reduce risk.
Improving financial records Prepare clear, consistent, and verifiable financial statements. This will enhance the buyer’s confidence in the investment.
Optimizing operational efficiency Invest in automation and training to boost employee productivity and reduce operational costs. This can increase profitability and attractiveness to potential buyers.
Identifying growth opportunities Highlight potential areas for business growth and expansion. This will make your business more appealing to buyers looking for growth potential.
Securing business liabilities Identify and resolve any potential legal, financial, or operational liabilities. This will reduce buyer uncertainties and improve your business’s overall appeal.

Enhancing Your Business’s Financial Performance for Sale

Building a strong financial profile is undeniably a central aspect of enhancing your business’s performance ahead of a sale. A corporation with well-rounded financials is often more attractive to potential investors, enabling you to set a higher asking price. Of course, it’s about much more than just your balance sheet, though. 

Begin enhancing your financial performance by conducting a thorough business audit. Scrutinize your income and expenditure streams, seeking expert opinions on recommendations for areas to improve. This transparency will ensure investors see exactly where their money is going, boosting their confidence in your business. 

Operational efficiency also plays a significant part in improving financial performance. By cutting costs and removing inefficiencies, your profit margin will inherently increase. Finding ways to boost productivity without dramatically raising costs can give your business a robust financial profile. This might entail streamlining processes, upgrading to more efficient equipment, or investing in employee training programs. 

Boost Your Business's Market Value

Taking the time to understand your cash flow can also be crucial. Cash flow is the lifeblood of any business; if not managed properly, you run the risk of leaving yourself exposed to financial difficulty. Make sure you have a clear plan in place to manage your cash flow effectively and be sure to include it in your financial statements. 

Planning for growth is an integral part of preparing your business for sale and helps to lay out a roadmap that demonstrates your business’s potential. This can be very attractive to prospective buyers, allowing them to see the bigger picture and understand the true value of your business. 

Finally, don’t underestimate the power of clean financial records. Not only will potential buyers consider clean and organized financials as a sign of a well-run business but they are also essential for preventing any delays in the sales process. 

Remember, it’s not just about making your business look good on paper; it’s about providing tangible evidence that it is a solid financial investment. True financial performance comes from a consistent track record of profitability, efficiency, and growth.

Preparing Your Managers

Preparing your team of managers is a key step in preparing your business for sale. This not only heightens the attractiveness of your business but also promotes a smoother ownership transition. 

Your managers are, after all, the helm of your operational ship. They are the ones who ensure that the day-to-day activities run smoothly, and efficiency is maximized. Additionally, they often have deep, hands-on knowledge of the business and their robust understanding and capability in handling operations can be highly appealing to potential buyers who are looking for proven leadership. 

A key step before communicating your transition intentions is ensuring you have a strong management team in all functions that are critical for continued success. The goal is to have a buyer view your business as one that can continue its current successes without you, the owner, being involved in the day-to-day managing. Once you are confident you have a strong management team in place, make sure they are aligned with your transition objectives, which can be done by having them as part of the ownership. Potential buyers like to see that the management team is entrenched in the future success of the business.

Start the preparations by communicating your plan to sell with your management team. Open communication can mitigate any potential concerns or rumors that may arise. It is also a good idea to reassure your team that their roles and responsibilities are not at immediate risk due to the impending sale. 

Next, consider offering managerial training if needed. An effective manager should not only be adept at their specific role but also possess a general understanding of how the overall business operates and have the ability to make strategic decisions. Upskilling your managers can show potential buyers your team can continue to drive the business forward post-sale. 

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Lastly, align the managers towards the same objective of making the business more desirable to buyers. This might involve streamlining operations, improving financial performance, or implementing new business strategies. A unified, focused leadership team can be highly attractive to potential buyers, who often look for stability and direction when purchasing a business. 

In conclusion, preparing your managers is an essential step while gearing up for a business sale. The more skilled, knowledgeable, and unified your management team is, the higher your chances of successfully selling your business.

Management Skills Importance for Business Sale
Leadership Vital for transition to new management.
Team Collaboration Potential buyers will prefer a well-unified team.
Industry Expertise Increased business value and credibility.
Strategic Planning Ensures business continuity post-sale.
Financial Acumen Ability to understand and communicate business financials to prospective buyers.

 

Assessing and Improving Your Business’s Curb Appeal

Strategies to Increase Your Business’s Marketability:

Gaining a competitive edge in today’s market is more than boasting impressive financials or having a dedicated team of managers. It’s about increasing the overall appeal of your business in the eyes of potential buyers. So, how can you boost your business’s marketability when preparing for a sale? Let’s delve into a few practical strategies. 

Develop a Strong Online Presence: In this digital age, having a clear and robust online presence can significantly increase your business’s marketability. Make sure your website is well organized, updated, and user-friendly. Engage in relevant social media and update your profiles regularly to keep your audience engaged and informed. Remember, potential buyers may first investigate your online footprint before showing interest. 

Promote a Strong Brand Image: A business with a strong brand image stands out from the crowd. Communicate your brand meaningfully and consistently across all marketing channels, from your company website and social media platforms to physical marketing materials. Highlight your business’s Unique Selling Propositions (USPs) to demonstrate your market positioning and define why customers should choose you over the competition. 

Demonstrate your leadership in your industry: A company that is entrenched in its industry demonstrates a number of positive things to potential buyers, including being informed and not operating in isolation, aware of industry trends, and contacts that can help it grow. This can be accomplished by being active members in your industry associations, having relevant and up to date certifications, and competing for industry awards. Each milestone your company achieves should be featured on your website and other client and buyer-facing channels.

Strengthen Your Client Relationships

Strong client relationships boost your business’s resilience and provide a clear picture of its future revenues. Increasing sales from your existing clients, diversifying your client base, and securing long-term contracts and recurring revenue enhances the predictability of your business’s revenues and can be a major selling point. 

Protect Intellectual Property

When preparing your business for sale, it’s not uncommon to overlook the value of intellectual property. However, valuable IP can serve as a key differentiator and attract potential buyers. Make sure all your patents, copyrights, trademarks, and trade secrets (including unique operating processes) have gone through an IP review and the most valuable are properly protected. 

Implement Robust Operational Systems

Profitable businesses have solid, repeatable operational processes that are easily transferred to new owners. Often called Standard Operating Procedures (SOPs), they are a way to run your business more efficiently day-to-day and allow a buyer to see that your business’s success will continue after the owner has left. If you don’t have this in place, consider implementing efficient systems and documentation for financial management, customer service, product or service delivery, and employee management. This not only adds to your business’s marketability but also decreases the risk perceived by potential buyers. 

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Creating an Exit Strategy: Common Mistakes Business Owners Make

When it comes to crafting a successful exit strategy, missteps can be all too common. Unfortunately, these errors can leave business owners between a rock and a hard place, struggling to make the most of their business’s value on the market and even be barriers to selling the company.

One common mistake is neglecting to plan in advance. An exit strategy isn’t something you conjure up overnight; it requires meticulous, long-term planning. Failing to do so could lead to various sale roadblocks, which might significantly reduce the selling price or even prevent the business from being sold. 

Another mistake is not understanding the buyer market and which buyer group is best to focus on. The buyer market is highly stratified with groups representing different opportunities for sellers, such as individuals, private equity, strategics, or industry buyers.

Additionally, many business owners fall victim to unrealistic valuation expectations. Setting your sights too high can deter potential buyers, whereas undervaluing your business can lead to significant financial losses. It is crucial to engage a competent business appraiser to carry out a thorough evaluation of your business. 

Another typical misstep is failing to consider the impact of taxation. It’s important to understand how the proceeds from the sale of your business will be taxed, as this can considerably affect your net profit. Considering tax implications early on in the process could save you substantial financial heartache down the line. 

Finally, another common slip-up is overlooking the importance of a seamless transition. The sale of your business will inevitably lead to changes, and it’s easy to underestimate the impact this can have on staff morale, customer relationships, and overall business operations. Carefully planning the changeover and communicating effectively throughout the process is essential in maintaining stability. 

Being aware of these pitfalls can help you to steer clear of them. Remember, preparation is paramount, and foresight is your most trusted advisor when preparing your business for sale. 

How Can an Exit Planner Help

Price is what you pay. Value is what you get.
– Warren Buffett

 An Exit Planner is instrumental in propelling the exit planning process in a systematic and calculated direction. Their expertise is pivotal in guiding you every step of the way, offering you a roadmap for the entire process. 

As a trained professional, an Exit Planner can help you identify the potential areas of improvement in your business before you set it up for sale. They can evaluate your enterprise holistically, determine your strengths and weaknesses, and structure the company in such a way that it becomes attractive to potential buyers. 

An Exit Planner will help the owner identify realistic objectives, identify the best seller market to target, review and make recommendations that will increase value and marketability, and coordinate your professional team, including lawyers, accountants and other related professional specialists.

Creating an Exit Strategy

Aside from reshaping your business, an Exit Planner also undertakes a critical task – helping to establish a realistic price for your business. This is integral because an over-valued or under-valued business tends to stall the sale process, making you lose valuable time and resources. Business owners should consider getting a business valuation to determine the fair market value of their company. With a firm understanding of market dynamics, Exit Planners ensure your business is priced accurately to its real worth. 

Moreover, Exit Planners can offer invaluable assistance in organizing essential documentation, including financial records, tax information, operational details, legal paperwork, and more. They ensure that all documentation is complete, up-to-date, and ready for due diligence; creating a comprehensive sales package that includes detailed information about the business can help attract serious buyers.

An Exit Planner should not be seen as an expense but as a future-proof investment that ensures a smooth and profitable business exit that delivers on your post sale objectives.

Final Thoughts

No one said preparing your business for sale would be easy, but with expert insights and best practices, you will be on the right path. Remember, every decision you make, from improving your financial performance to fostering a more engaged workforce, can significantly impact the value of your business on the market.

It’s like prepping your house for sale – you wouldn’t want potential buyers to see chipped paint, rusty appliances, or other issues that depress its value and marketability, right? That same attention to detail, appearance, and functionality should also be applied when selling your business. So, keep a keen eye on potential areas for improvement, and don’t hesitate to seek professional help if needed. 

Remember, while exit planning may not be an easy journey, it’s a journey that every business owner needs to undertake at some point. The smarter and earlier you start this journey, the better your chances for a successful and profitable sale. So, gear up, roll up your sleeves, and take the first step towards preparing your business for sale today. 

As we wrap up this guide, one thing is clear: preparing a business for sale is an intricate process. It involves meticulous planning, strategizing, and a whole lot of patience. But remember – you’re not alone in this. There is a wealth of resources available to help you navigate this complex process, such as Exit Planners who have an array of useful tools and services. Utilize them to your advantage, keep the bigger picture in mind, and you’ll be on your way to securing a promising future for your business. 

Whether you’re just starting to think about selling your business or you’re in the final stages of a deal, remember that the aim is not just to sell but to sell well. With the knowledge and guidance gained from these sections, you are well-equipped to do just that.

Steve Williams CExP™, CMMA

is a Partner at Incentica Business Plans in Calgary. He is a certified exit planner and mergers & acquisitions advisor with 30 years of senior management and executive experience. Steve has written over 130 business plans and succession/exit plans for some of the biggest best, including Fortune 500 companies. Steve is a Business School grad and Harvard educated.

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