Whether you regularly set New Year’s resolutions or not, the end of the year is a good time to be setting goals for your business. If you’re planning to sell or retire within the next few years, there are some steps you can take this coming year to make your business more attractive to a prospective buyer and ensure you obtain maximum value for all your hard work. Some of these goals require time to implement, so it’s never too early to get started.
Clarify your goals for the sale and for your life after the sale.
Selling a business can be more emotional than you think, and I always encourage owners to create a plan for their new life after being a business owner. Whether it’s travel, pursuing passion projects, spending time with family, or starting a new venture, having a plan that you, your business partners, and family can look forward to can help you get through what can be a long and tedious sale process.
You should be clear on your priorities for the sale, as well: how long are you willing to stay in the business after the sale (if at all)? How much of the sale are you willing to finance or take in earnouts (if at all)? What kind of buyer would be the right fit for your company and your legacy? Deciding on these issues early will save time and stress during negotiations.
Get your financial records in order.
The focus of most small business owners is to minimize their tax burden. However, being overaggressive with non-business-related deductions can be counterproductive during a sale since your tax returns won’t reflect the true financial performance of the business. Starting the new year with a more organized approach to bookkeeping is a very good idea – at the very least, you’ll end up with a full year of clean books. If you need help getting your financials organized, hiring a fractional CFO would be a good investment.
Make changes to your operation to increase efficiency and profitability.
Every dollar you add to your bottom line will pay off in multiples when you sell, so this is the right time to look at every process in your company. Eliminate inefficiencies, invest some time in training, and tighten up inventory. Ask your key employees what keeps them from performing at their best or what they think is costing the company more than it should. Of course, depending on your time horizon for a sale, increasing the topline revenue through a focused sales and marketing approach can pay huge dividends.
Change or strengthen your management structure.
Buyers are looking for companies that aren’t highly dependent on the owner. If you are essential to every business decision or ensuring the company runs smoothly on a day-to-day basis, your company is worth less to a buyer. Make decisions about who on your staff is ready for more responsibility and delegate more to them. Develop a clear number two and provide the training and support they need to build confidence and take on some of your responsibilities. Utilize technology to automate processes that take up too much of your time or your team’s time.
This is also a time to look at the strength of your sales and marketing plan. Are your sales and service relationships dependent on your personal reputation? A new owner will want to know that customers and prospects won’t abandon ship after a change in ownership. The same is true of your employees. Make sure salaries are aligned with market standards and that job descriptions match actual duties. Ensure that the company relies on processes and systems rather than history or long-standing relationships.
Finally, Assemble your team of professionals.
Especially if you are organizing differently or cleaning up your accounting practices, your CPA should know your goals and timeline for a sale. They can also help you locate and organize the tax records and other documentation needed for the diligence process.
Ask your attorney to review any contracts, leases, liens, or other legal issues that might impact a sale. Transfer of ownership can be a complex issue that sellers are not always aware of. Ensure you have all the information a new owner will need to take over leases, equipment, or proprietary processes.
Of course, one addition to your team should be a professional Business Broker or M&A Advisor. They can help you understand what your company is worth in the current market and provide more customized advice on how to make it more valuable.
Our next post will provide some tips on how to choose the right intermediary to quarterback the sale of your business.
