How to Prepare Your Company for Sale
You’ve spent years building a small business from the ground up. Now it’s time to retire, sit back, and enjoy life…or travel the globe…or start a brand-new business!
Whatever your plans may be, you face the prospect of selling your company. And there’s much more to selling a company than hanging a “For Sale” sign in the shop window.
Buyers often consider existing small businesses to be worthy investments. But the COVID-19 pandemic slowed the small business sale market considerably. Some owners put off plans to retire if they could. However, when the pandemic gets under control, small business owners that are looking to sell may find themselves in a buyer’s market. The competition will likely be tougher.
A business owner that’s selling a company soon will need to take steps to make sure that their finances and their business model are in top order. These steps can help their business to look more attractive for would-be suitors. They’ll also make buyers more confident that they’re getting a business that’s already running well — and easy to jump into — when they take over.
Here are some behind-the-scenes guidelines on how to prepare your company for sale.
Review All Estimates of Business Value
Put together estimates of the market value of your business. If you don’t do this before listing your business for sale, prospective buyers will use their own evaluations, oftentimes with terms that are more favorable to themselves.
Calculate your asset value and revenue and document every valuation formally. Focus your estimate around important areas that include A/R allowance, inventory obsolescence, goodwill impairment, and bonus and benefit accrual.
Gather Three Years of Audits
Buyers will want to see an audit of your business. To be honest, they likely won’t ask — they’ll insist! This is to ensure that your business results are on the level and conform to accepted accounting principles.
Have your business activity over the last three years audited by your accountant. It’s best to have separate reports for each year. If that’s impossible for some reason, you can have them combined into one.
A fair and honest audit speaks to your operability and professionalism. It might even help to increase your sales price.
Make Sure That Your Internal Controls Are Documented
Approaching buyers will want transparency about the ways in which your company reports its finances. They need to know what policies you have in place to guard against report inaccuracy and fraud and how you ensure regulatory compliance.
Have your internal controls thoroughly outlined and documented. It’s best to have this done by a forensic accountant that knows the right controls and standards to put in place.
Make Budget Forecasts Available
Your chief financial officer — whether they’re a staff member or a fractional CFO — should prepare copies of the last few years of budget forecasts. These should compare the forecasts to results, noting how close the budget came to actual numbers.
Forecasts for the last three years should be documented. Provide the current year’s forecast, as well. Again, focus on inclusiveness and detail. Break down the individual budgets for every revenue center by month and by customer.
Clean Up Your Website and SEO Backlinks
Whether it’s fair or not, buyers form a lot of opinions about a business’s intrinsic value from their websites. It’s the entry point for a lot of your customers. Bad user experience, clunky design, confusing navigation, and broken controls take away from that value.
Backlinks are especially important to maintain. Inbound links add to your company’s reputation and enhance your rankings in search results. If they’re poorly maintained or ignored, your SEO will often take a hit. Buyers see that as a disabled revenue stream.
If you don’t have a webmaster, find a trusted local web designer to tighten up your website and fill in its gaps.
Increase Your Company’s Cash Reserves
Anything can happen in the closing months of your business ownership. When you’re selling a business, you have to take care of any emergencies that come up immediately. If they aren’t resolved, they’ll be exposed to your buyers, who may then decide to back out.
Before you list your business for sale, increase the amount set aside in your cash reserves. Between 15 and 30 percent of the last 12 months of revenue is an ideal range for cash on hand. The more you can afford, the better your company will look to prospective buyers.