You may have no intention of selling your business in the next 20 years, but start planning for the inevitable now.
“Every seller wants the same things: the highest price, the least amount of effort in the quickest timeframe,” says Chad Simmons, author of the “Business Valuation Bluebook.” “There are steps you need to take to make this occur, and you can’t start thinking about it this week if you want to sell next week. The time to start thinking about it is the day after you start the business or the day after you buy the business.
“You need to be looking at least a year ahead to prepare. There are things you can do that will result in a dramatic improvement in value.”
Secure your good location. “No lender will offer a five-year business loan to a business with only three years left on its lease,” says Simmons. “Go in and renegotiate with an extended term with some options to renew. It will help ensure to the potential buyer that the location is going to be there.”
Develop your Web address. “A Web site is becoming like a telephone — you have to have one,” says Simmons. “Those who put one up are more viable than those that don’t, even if there is no direct increase in sales. It’s just one more thing a buyer won’t have to do.”
Preview your business. Clean up your business, both literally and figuratively. Get rid of old inventory and eliminate positions that are no longer needed.
Prepare your numbers. “You’re going to have to make some disclosures to any potential buyers,” says Simmons. “It’s a good idea to know what they are going to be and prepare them ahead of time. Also, get a nondisclosure agreement for the parties to sign. When someone asks to see three to five years’ worth of financials, respond positively and hand them the statements you’ve already prepared. This eliminates a lot of the running around.”
Reduce uncertainty. Don’t tell your employees you’re going to sell. You don’t want to scare valuable employees off, and you don’t want to give the buyer a reason to say no.
Don’t cheat. If you’re skimming from the business, stop now. It’s illegal and will greatly complicate matters when others start looking at your financial statements.
Prepare to transfer knowledge on how to run the business successfully. “Be prepared with a training program,” says Simmons. “Prepare a written outline on how you will help the buyer fit into the business, teach them about the product or service and introduce them to customers.” Find a way to convert your skills into the business itself so the best assets aren’t walking out the door when you leave.
Protect your brands. Use copyrights, service marks and trademarks to protect your brands if you haven’t already done so.
Solidify your customer base. If possible, put your customers under contract, even if just for a year. It gives a potential buyer confidence that the client base will still be around when he or she arrives.
Increase your visibility. “A great time to hire a PR firm is one year before you sell,” says Simmons. “The more people that see you, the more that will want you. It will make your business more attractive.”
Take your own look. Hire a broker, accountant or attorney to take a look at your business as if you were going to buy it. See how it looks from an objective point of view. This will help you anticipate problems and give you an idea of how any deal will be structured — and don’t expect a suitcase full of $100 bills.
“The most important thing may be to be realistic,” says Simmons. “I’ve seen so many who have had wonderful businesses, but they have an overinflated estimate of what it is worth. It’s damaging and sad. They could put it on the market for the right price and sell it quickly and be on to whatever they have in mind next. But they think it’s worth so much more, that it sits on the market for a year or more with all the associated holding costs.
“Their attitude really turns sour, the employees see that and revenue goes down. It’s important to do a valuation and know what your business is worth.” How to reach: Chad Simmons, www.priceaspower.com
Todd Shryock ([email protected]) is SBN’s special reports editor.
