As an entrepreneur, you start your company because of your passion for what you are doing. Yet, no matter how much you love your business, you will eventually need to sell it. This guide from SmallBusiness.co.uk offers three great ways to ensure you get the most money possible for it.
As an entrepreneur, you start your company because of your passion for what you are doing. Yet, no matter how much you love your business, you will eventually need to sell it. For example, you may want to retire, you may want the money to pursue another exciting opportunity or perhaps the business needs be part of a bigger organisation in order to grow.
The reason for the sale doesn’t matter. What does matter is that you get the most money possible for it. This guide from SmallBusiness.co.uk and Barry Larson, founder of IT consultant Arbutus Ridge, offers three great ways to ensure you do.
Design the business to operate when you aren’t there
This one sounds easy, but it’s trickier than it seems. Ask yourself, ‘Could I take a month-long holiday and not have a problem?’ If the answer is no, it’s time to think about your systems. “Systems” is just a fancy way of saying that you have written procedures or documented how you do things.
This can be as simple as a few steps on a piece of paper or, alternatively, involve some sophisticated computer software. The key test is whether your team would make the same decision as you, even though you aren’t there to ask.
There is another benefit to having standard, written processes – your business is more robust. When processes are documented, projects are not stopped because a key person calls in sick, and new recruits can be productive sooner.
Both of these benefits are linked to efficient operations and that means more predictable cash flow, a key component in the valuation of your business.
Make it easy for the buyer to see how they can achieve their plans
Buyers want your business because they want to do something with it. Your job is to show them how easy it is going to be to achieve their plans once the deals closes.
Typically, these plans fall into two areas. Firstly, the buyer may want to reduce operational overheads by slimming down the administrative part of your business. Ensure your staff and operational costs are fully broken down for the buyer to see.
This transparency makes it easy to determine where there are possible efficiency gains, and you may even identify some savings long before you sell.
Secondly, the buyer may see new sales opportunities stemming from your customer base or your products. This means that you must have accurate records of current and past customers, what they bought and for how much. This is a great way to explain why your business is the best one to buy.
Have answers to all of the due diligence questions
Many buyers will start their due diligence process with an audit of your contracts. Through these documents, the buyer can easily determine what, if any, intellectual property your staff own or the terms on which they can be made redundant, for example.
Equally, it may be important to cancel existing customer or supplier agreements, and it is only through the contracts that the buyer can establish how easy it will be to do this.
It is useful for the buyer to see the negotiated parts of the agreements and to understand how you reached your terms. Having all of this information to hand at the outset demonstrates that you take these matters seriously, which is a good thing from any buyer’s perspective.
Each of these tips should help to increase the value and desirability of your business, but remember, this work often needs to begin a number of years in advance of the sale.