The sale of your business is a very crucial financial decision you will ever make. However, most owners tend to leave it to the eleventh hour before considering it, which usually results in hasty decisions, low valuations, and lost opportunities. You must have time on your side, in case you really want to maximise value and appeal to serious buyers.
Early is better, as this provides you with time to build strong operations, clean up finances, and put the best foot forward with respect to your company. You can sell your business ideally, no less than 12 months before you intend to leave.
The following is a style guide that is updated on a month-to-month basis.
Why 12 Months Matter
People do not buy profits but buy stability, systems, and possibilities. One year will provide you with sufficient runway to:
Enhance financial results.
Fix operational weaknesses
Reduce owner dependency
Build buyer confidence
Enhance valuation multiples.
Hurrying the process normally implies taking up inferior offers or unfavourable conditions.
We will separate what you are supposed to be concerned about at this critical time of preparation.
Months 12-10: Get Your Financial House in Order.
The initial scrutiny by buyers is your financials.
Start by organising:
Profit and loss statements (Past 3 years)
Balance sheets
Tax returns
Cash flow reports
Isolate personal expenses on business accounts and make sure that all is placed in its place. If your books are in disorder, seek the services of an accountant to tidy them up.
Customers desire openness and uniformity. Good, well-articulated financials will automatically enhance confidence and value.
This is also the time to determine how to increase profitability - any increase in margin can have a major effect on your ultimate selling price.
Month 10-8: Document and Systemise Operation.
Most businesses end up losing value due to over-dependence on the owner.
To adequately head your business to sale, you should ensure that you make your business run smoothly without you.
Develop documented procedures of:
Sales and marketing
Client onboarding
Daily operations
Vendor management
Customer service
Train your employees to take up roles that you are already doing. The more plug-and-play your business seems to be, the more it is appealing to the buyers.
Months 8-6: Build your market.
It is time to sharpen your competitive advantage.
Focus on:
Retaining key customers
Revenue diversification.
Improving brand presence
Enhancing relationships with suppliers.
Dangerous change or experimental projects should not be taken at this stage. Customers like to see a stable growth as opposed to aggressive expansion.
Where possible, get long-term contracts or recurring revenue - this tremendously enhances the confidence and value of the buyer.
Months 6-4: Clean up Legal and Structural Issues.
Surprises kill deals.
Review:
Licenses and permits for business.
Employee contracts
The ownership of intellectual property.
Lease agreements
Pending legal matters
Settle the disagreement and get it all in order. Where necessary, simplify your company structure in case it is complex.
Buyers want clarity. Negotiations may be derailed or stalled by any outstanding legal or compliance matter.
Months 4-3: Build Your Sale Story
There is a story behind every sale that is successful.
Write an interesting business narrative that discusses:
What your company does
Who your customers are
The business is profitable for the following reasons.
What makes it unique
How can it grow further?
This is where you put a spotlight on future opportunities - new markets, channels that have not been tapped, or systems that can be scaled.
By getting ready to sell your business, you are not merely selling previous performance but are selling potential.
Months 3-2: Build Your Exit Team.
The sale of a business is complicated. Be in the company of professionals who are knowledgeable about the process:
Accountant
Legal advisor
M&A advisor or business broker.
They assist in valuation, documentation, negotiations, and due diligence, and save you time and secure your interests.
Attempting to go it alone can, in many cases, be an expensive mistake.
Last Month: Get ready for Buyer Due Diligence.
Buyers will question all the details.
Create a secure folder with:
Financial statements
Operational documents
Employee details
Customers list
Expect difficult questions and have truthful answers. Openness fosters confidence and accelerates deal closure.
Remember that you have to operate the business during this time - good continued performance will help convince buyers and deserve your asking price.
Final Thoughts
Purchasing your business is not a one-day event. The sooner you begin, the better the chances you have to control the result.
By performing 12 months to prepare your business for sales, you can be able to:
Increase valuation
Attract better buyers
Reduce stress
Close faster
Exit on your own terms
Consider preparation as an investment - one that will yield when you hand over the keys.
Now is the time to start preparing in case, in the future, you will even have the slightest possibility of selling. You will thank yourself in the future.
Note: The figures, examples, and calculations stated in this article are only general and can not be precise. Real performance may differ depending on the industry, the location, and the business circumstances of the people. Consultation should always be made by the financial/business advisor before making major decisions.
Comments
Log in or sign up to join the conversation.