How to Prepare Your Company for a Maximum Value Sale
Businesses get bought and sold every day. But what the data doesn’t reveal is how many business owners lose millions in potential sale proceeds because their companies were not properly prepared. Buyers are a fickle bunch; any oversight or false move, such as sloppy financials, a lack of systems, or a business overly reliant on its owner, can reduce the selling price by a significant sum.
This isn’t a scare tactic; it’s a business reality. Failing to secure the full value of your company almost always results from a lack of preparation and underestimating the buyer’s aggressiveness in vetting your business to justify lowering the sales price. Preparation goes beyond financials, systems, and operational issues. As an owner you have to prepare yourself for the emotional aspects of selling a business—especially a company you’ve built from scratch.
Here are some top strategies for preparing your business to maximize its selling price:
1. Educate yourself and know what you want. This may be obvious but it is crucial to know what the selling process entails. I am always amazed when a business owner puts his company on the market without having done due diligence in finding out the different steps involved or not having a well-thought out idea of what they want to get out of the sale. If you are poorly prepared, it will frustrate potential buyers and ultimately be a waste of everyone’s time. Underestimating the amount of time and effort it takes to get a positive selling result often costs business owners millions.
2. Put on the buyers lens. Look at your business from a buyer’s perspective, and think like a buyer when assessing you business. This requires a process called reverse due diligence, which identifies any potential problems that could result in pushing down the purchase price. Typical problems uncovered can span the spectrum including—but not limited to—unreconciled balances, past due receivables, poor financials, inventory, expiring leases, and expiring customer or vendor contracts. Thinking like a buyer can prevent a price reduction and can improve the odds of getting the maximum sale price.
3. Make any necessary upgrades or renovations. Audit the company to identify the upgrades or renovations that will best increase the value of the business. For example, if you are using an antiquated point of sale (POS) system, invest in a new system that enables the business to run as efficiently as possible. Just as a residence’s curb appeal can make a significant different in sale prices, a business also need to make sure its infrastructure is in as good of shape as its systems and operations.
4. Prepare handbooks and operation manuals. A company’s operations are the heart and soul of its success. Documenting the operations strategy, including systems and processes, provides a potential buyer with a blueprint for ongoing success and assures them the business is well positioned to sustain and increase profits and value.
5. Diversify revenues. While some proprietary strategies may work for short-term growth, maintaining too much of a niche approach at the expense of diversity can make it harder to sell your business for top market value because it makes the company especially vulnerable if the industry suffers a downturn. Buyers want to see maximum growth potential, so diversification of the industries served is a key to receiving top market value for your company.
6. Lastly, be in control of your emotions. Selling can be extremely stressful. Some owners go through a kind of separation anxiety over the thought of seeing their business go to someone else; others become mentally, emotionally, and even physically removed once they decide to divest. You need to stay on an even emotional keel to make your company maintain top performance to maximize its sale price.
We help prepare companies for sale by identifying opportunities to improve operations, systems, financials, and other aspects through reverse due diligence. Making the right strategic adjustments and operational improvements will position your company to get the maximum sale price possible.
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