Selling Your Business? Know the 3 Ps

Did you just get into business last week? Have you owned your business for 20 years? Prepare to sell it!

That's right - even if selling your business is the last thing on your mind today, you should understand the sale process and be well-prepared for this possible end-game. For a better perspective on what it takes to get your company ready for sale and why it's so important to be proactive, consider the 3 Ps of selling your business.

Planning

Advance planning helps to eliminate headaches and makes for a smooth transition. In an ideal world, new business owners would incorporate an exit strategy into their initial business plan.

In reality, not many business owners think about their exit strategy until they're ready to sell, or a merger-acquisition opportunity arises. In that case, we recommend talking to a professional as soon as possible to discuss your options. Which brings us to the next P of selling your business...

Professional Involvement

The process of selling your business is time-intensive and can get quite complex. For this reason, we recommend enlisting the services of a professional business broker or intermediary. Brokers and intermediaries are professionals who can help you with a number of areas, including buyer or seller representation, assistance with deal structure, management of the sale process, assistance with pricing the business appropriately, and more - all to facilitate a smooth and successful business transfer while reducing risk of the deal falling apart due to of lack of familiarity with the business transfer process.

Preparation

The scout motto, "Be prepared", is particularly appropriate for business purchase / sale situations. We have seen out-of-the-blue offers made, with quick turnaround and transfer of the business in a matter of weeks.

We have also seen apparently attractive, appropriately priced businesses take as long as 12 to 18 months to sell, even though the buyer and seller had been in talks soon after the business first came on the market. Here are several recommended preparatory steps for the business owner and his/her management team.

Personal Steps

1. Prepare emotionally: When the time to sell their company comes, many owners find themselves struggling with unexpected anxiety. Sellers' remorse is not uncommon. The seller's sense of identity may be tied to their role in the business, which they raised like a child. Even more challenging from an emotional perspective can be situations where the owner inherited the business from a family member. What will happen when the business owner no longer has to wake up at 5 a.m. every morning as they have done for the past 25 years? What new adventures / challenges will the owner be able to set for themselves?

2. Obtain legal, financial and other appropriate advice: This is where the seller maps out their post-sale financial plan. What happens once the business is sold? Where will the former owner place the sale proceeds? Will they deposit the funds in a bank? Will they invest in stocks? Will they buy another company? What will be the effect of the sale on legal matters? Has estate planning been considered?

3. Prepare your family: The impact of selling a business on the owner's family can be pretty large, and there are several scenarios to consider. How will the sale of the business influence the seller's personal life? Will there be a whole lot more time spent at home? Will the family dynamics change? Do children or other relatives currently have a role in the business? Was such a role, or even transfer of the business within the family anticipated?

Business Steps

1. Improve the financial records: Transparency is important for the potential buyer - have financial statements audited if possible. For larger, more valuable businesses, this is worth the additional cost. For smaller businesses, where audits may be prohibitively expensive, it is important that the potential buyer can verify your records through spot-checks, references to bank statements, or other means of testing financials. Transparency reduces risk for the buyer, makes for a smoother transfer process, and gives you the opportunity to clean up any potential issues (legal or otherwise) before marketing the business for sale.

2. Develop your staff: Developing your staff has the added benefit of reducing dependence of the business on the owner. Business owners inject aspects of their personality and habits into a business, influencing the business model and company culture (amongst other attributes). Often, this can result in a business that becomes dependent on the owner. Reduction of this dependence, such that the business can operate effectively from a day-to-day perspective without owner micro-management, is key to improving the chances of a successful sale and increasing the value from a buyer's perspective.

3. Establish, implement and improve systems: Work on improving your company's systems and controls (financial, management, operational). This facilitates the transition process for a potential buyer (making your business a more attractive purchase). Incidentally, this attention to systems and controls is generally recommended as a way to improve results for the current owner.

4. Clean up the business' physical appearance: Just like a clean and organised house sells quicker than an untidy one, clean and organised business facilities present well to buyers and make a positive difference.

Market Steps

1. Key an eye open: Pay attention to what's going on around you. Timing is everything, and selling your business at the right time can make a big difference. Watch for selling opportunities that may present themselves at a moment's notice.

When it comes to selling your business, you can never plan too early or be too prepared.

This article is part of a series reflecting on some of the 'best practice' issues and considerations relevant to private business owners or those considering entering private business. Kumi Bradshaw MBA, CBA, BVAL, is a co-founder of Asgill Post, which provides Business Intermediary Services: Business Valuation and M&A Assistance. For comments or queries, contact kumi@asgillpost.com