When preparing to sell your business, it’s useful to consider the buyer’s point of view. They usually prefer low risk with high reward when they consider investing in a small business, and they look for good cash flow and solid systems with the potential for further growth.
Buyers will need accurate and complete information to make an informed decision on whether your business is suitable for them. You can help this process by understanding who your potential buyer is and what they may want to know about your business.
In general, there are seven key factors buyers will take into consideration when they’re evaluating a business prospect.
This is going to be one of the first questions a prospective buyer asks you. You should have an honest response that doesn’t suggest the need for urgency. Owners commonly sell their businesses for any of the following reasons:
It’s important to be honest.
You’ll get the best deal for your business if you plan the sale well ahead of time. This will give you the chance to increase profits and sales, as well as your customer base. All of these things make your business more attractive to potential buyers. If they’re aware that you’ve planned the sale well in advance, this is an indicator to them that you’re not being forced to sell in a hurry.
To be prepared for the most likely questions prospective buyers will ask, make sure you:
Buyers will be aware that there’s a risk of customers leaving after you sell. You’ll need to reassure them that your customers are loyal to the business rather than to you.
It’s likely that potential buyers will want to view at least three years of financial statements, including income statements and balance sheets. They’ll be buying into your business’s future profitability, so explain any differences between what the finances are showing now, and what they could be showing in the future.
Gather your financial statements and tax returns dating back three to four years and review them with your accountant. In addition, develop a list of equipment that’s being sold with the business. Then create a list of contacts related to sales transactions and supplies and dig up any relevant paperwork such as your current lease. Create copies of these documents to distribute to financially qualified potential buyers.
Buyers are always looking for a business with a solid track record of growth in sales and profits. To increase your appeal, focus on improving your sales trends and profit margins. Consider these strategies:
It’s important to demonstrate your ability to generate strong sales and maintain a lean, efficient operation.
Your business is worth what someone’s prepared to pay for it, and what you’re willing to sell it for. To get an idea of either and to find the right balance, you need to figure out what area of the ballpark you’re playing in.
There are several ways you can go about valuing your business. Which one you choose depends on what kind of business you own, who you’re thinking of selling it to and your reasons for selling in the first place. Talk to a business broker about the most common methods of valuation and which suits your business best.
In much the same way that you’d spruce up your house before it goes on the market, giving your business a makeover so that it’s presented to its best possible advantage is essential.
This means tidy financial records, optimal levels of staff and inventory, and tightened control over debtors. Fixed assets, like equipment and vehicles, should work well without needing to be replaced in the near future.
Don’t forget the physical aspects. Update your signage and marketing material, so that you make good first impression when buyers come to view your business. Your premises should be immaculate and orderly, with friendly staff and lively activity. New signage, repainting, and implementing a general clean desk policy will help the overall impression.
Understanding these seven key factors is essential for a successful sale. Meeting these expectations will not only increase the appeal of your business but also help secure a favorable deal when the time comes to sell.