The New Year is just around the corner and you’re probably already thinking about what you’d like to accomplish. So, as you start making your list of New Year’s resolutions, such as joining the gym or losing weight, don’t forget to add “sell my business” to the list. The beginning of the New Year is one of the best times to sell your business.
January has historically been a busy period in the business-for-sale market as ambitious buyers with ownership resolutions begin their entrepreneurial search. According to BizBuySell Insight Reports, small business transactions jumped 20% in Q1 of 2017 compared to Q4 of 2016. With transactions set for record highs in 2017, the number of business sold in Q1 is likely to be a new high and the beginning of another record setting year. As an owner, it’s important to get out in front of the increased activity and list your business for the post-holiday rush to see.
So while you’re thinking about joining Weight Watchers and 24 hour Fitness, also think about all the things you can do to start preparing your business for sale. Planning ahead and taking the proper steps now will more likely lead to a better sale price later.
Here are 5 steps to help you in preparing your business for sale:
1. Prepare Your Financial Statements.
One of the most important steps to preparing your business for sale is getting your financials in order. Work with your accountant or bookkeeper to compile your financial statement and gather together the following documents:
- Profit and Loss Statement
- Balance Sheet
- Cash flow statement
- Tax returns for the last 2-3 years
- Additional financials to support financial representations
- Current lease
- Supplier and vendor contracts
- Insurance policies
- Professional licenses and certificates
- Employment agreements
Once you’ve compiled your financials, review them for any holes or discrepancies. This is your opportunity to correct any inaccuracies or make improvements to the key financial ratio. Potential buyers will be looking for a business that performs well financially and has verifiable documentation.
2. Estimate How Much Your Business Is Worth.
Depending on the size and type of business you own, there are several methods of determining the value of your business and associated asking price. As you start preparing your business for sale, you may prefer to consult with a professional business appraiser, but you can also get a ballpark estimate through researching comparable businesses and using earnings multiples. Most experts will agree that an income-based valuation is the most accurate, which can be obtained through a professional business broker or appraiser. BizBuySell’s Broker Directory is a great place to get started if you want to discuss your options with a professional.
3. Tidy Up the Place for Potential Buyers.
Everything in your business should be neat and presentable to attract potential buyers. This includes clearing out clutter, excess inventory and old stock, and even utting on a fresh coat of paint and making repairs if needed. This is also a good time to update your website and other digital assets. For more on how to get your business in display condition, read Business for Sale Makeover: 5 Ways to Attract Buyers and Make a Great First Impression.
4. Make Improvements to Increase the Value of Your Business.
As you prepare your business for sale, you’ll probably see a few weaknesses and areas that need improvement. You’ll also see new opportunities to add value, such as creating streams of recurring revenue, establishing workflow processes to increase efficiency, as well as differentiating your products and developing intellectual property. This is also a great time to cultivate a stable and skilled workforce which is worth its weight in gold to new owners.
5. Meet with a Professional Business Broker.
Selling your business on your own can be a very difficult task, weighed down by emotion. A professional business broker adds objectivity and expertise to the selling process. A good broker should be well-qualified and reputable. We recommend that they also be professionally credentialed, such as a Certified Business Intermediary (CBI) from the International Business Brokers Association (IBBA) or a member of a local broker association. Interview potential candidates and ask them their strategy on how they would go about locating and screening potential buyers. Read more in our article How to Choose the Right Business Broker.
Selling a business can be an overwhelming task. Yet, preparing ahead will not only give you an opportunity to assess your business and plan your sales strategy, it will also serve as a means to add value to your business and fetch a higher sale price. For more information about preparing your business for sale, download BizBuySell’s free Guide to Selling Your Small Business.