How would you like to get more for your business when you sell it? Sure your work is rewarding, that's why you are a business owner. You love your work, but you also love the creation process, the satisfaction of building something that will last. But you will sell someday. It's part of the process. And it's part of the reward. When you sell, you'll want to both see the new owner succeed and you'll want to make sure that you are getting as much as you can for what you've built.
That's part of the payoff, the satisfaction that you built something from scratch into something someone will pay money for. Or from what it was into something more valuable. With that in mind, I hope, during the next few weeks, to throw out some practical ideas to help you as you think about selling.
Tip 1. Start preparing your business for a sale at least a couple of years before you actually intend to sell.
It's kind of like preparing to sell your home. You paint. You tidy up the yard. You fix the sagging gate that's been on your to-do list for months. Same thing for a business. There's those nagging little projects you've put off for months, years maybe. And you know you need to do them, but you've spent so much time fighting the daily fires that those things get pushed to the back burner. And guess what, those little projects take longer to complete than just fixing the gate or painting the kitchen.
Revamping a website, or implementing a new point of sale system: those things take time. That's part of why you put them off. But you don't want to be scrambling to get something in place as a potential buyer is walking through the door. By that point, you want everything running smoothly. If you want to sell for a premium price, you'll want to make your business as turnkey as possible. And to do that, you've got to start thinking ahead. Make those projects a priority, and start well in advance of when you want to be done.
Tip 2. Clean up your accounting.
One of the areas a potential buyer will focus on the most is your financial statements and accounting systems. If they don't feel like they can trust the accounting records, they won't trust you. It will put a damper on their enthusiasm, and it will put a damper on the price. Specifics?
- Implement a true accrual based accounting system.
- Make sure everything ties out.
- Don't keep unresolved amounts in the "Ask My Accountant" account in your QuickBooks file.
- Make sure you are doing reconciliations.
- When your accountant tells you to make a journal entry for depreciation, do it.
- If you can afford it, have an accountant perform a compilation or review.
You don't have to do these things, but the level of professionalism you bring to your business overall will be reflected in your accounting records. A competent buyer is going to go over your books in detail. And the more transparent she finds your books, the more likely she is to pay your asking price. People with nothing hide, usually don't. And if your buyer suspects that you are trying to hide something with your accounting, its sours deals very quickly.
Tip 3. Increase your profitability.
You know how to do this: increase sales or decrease expenses. But the more profitable your company is, the more someone will be willing to pay. And this point, goes hand in hand with the first two. You want to show a track record of profitability, preferably becoming more profitable over time. And you can't expect someone to come in and then tell them "Yeah, we lost money, but really it's only for tax purposes. If you adjust this and this and this as shown in the accounting records, we really did make a profit."
You might get away with a little bit of that, but you're playing with fire. It's better to bite the bullet and pay the tax. It will pay off in the purchase price. Cut the fat and personal expenses and show the buyer what they really want, a lean organization that makes money. That's what they really want to buy anyway. And if you don't do it, they will pay you less, make those changes themselves, and capitalize big time on just making these types of changes to your business. Private equity lives on these types of changes. Do it yourself and you can take the payday.
I've got several more ideas, but I think this topic is big enough to span a few weeks, and I'd like to save those ideas for the weeks to come. In the meantime, let's start some discussion: in what ways do you think a business owner can prepare for a sale? Are there any particular questions you have on this topic where I might be able to help you?