Is Your Business Ready for Sale? 10 Things to Do Before Selling

Selling a business isn’t just about finding a buyer and settling on a price. The most successful business sales are generally the ones that have been prepared long before they hit the market.

A potential buyer needs to understand your historical and current financial performance, operations, customers, employees, assets, risks, and of course, future potential. The more organized and transferable your business is, the easier it will be for a buyer to see its value.

So, is your business really ready for sale? Before you put it on the market, here are 10 important things to do.

 

1. Get Your Financial Records in Order

One of the first things that a potential purchaser will want to to see is financial statements.

Make sure your bookkeeping is up-to-date and that your financial information is accurate, organized, and easy to understand. You should be able to provide several (at least 3) years of financial records, including:

• Income statements
• Balance sheets
• Tax returns
• Cash flow
• Accounts receivable and payable
• Details of significant expenses

Buyers want to understand how much money the business generates and see that its financial performance is sustainable.

Clear financial records also ensure that the due diligence process easier and helps support your asking price.

 

2. Understand What Your Business Is Worth

A common, and understandable mistake that business owners make is setting an asking price based on what they would like to receive rather than on the provable value of the company. You may have poured your heart and soul into building your business and it’s now ‘your baby’, but potential buyers will not pay for emotional attachment.

Business value may be influenced by:

·       Revenue

·       Profit and cash flow

·       Industry

·       Growth potential

·       Assets

·       Customer concentration

·       Recurring revenue

·       Location

·       Intellectual property

·       Owner involvement

·       Market conditions

Depending on the size and complexity of your business, we recommend that you speak with a qualified experienced professional such as a business valuator, accountant or business broker.

Really understanding the value in your business will help you set your expectations and attract serious buyers.

 

3. Reduce the Business's Dependence on You

Ask yourself a simple question:

Could your business continue to be successful if you were not there every day?

If the answer is no, buyers may see additional risk.

Businesses that rely heavily on the owner's personal relationships, knowledge, sales ability, or daily involvement tend to be more difficult to transfer.

Before selling, look for ways to ensure that your business can function independently. This could include:

·       Delegating responsibilities

·       Training managers and employees

·       Documenting important processes

·       Creating operating procedures

·       Moving customer relationships to the company rather than the owner

The easier the business is to transfer, the more attractive it is to potential buyers. Going through this process will also help you to start preparing yourself for life after your business by starting to step back and pass the torch to the next owner.

 

4. Document Your Systems and Procedures

Successful businesses run smoothly because the owner knows exactly what needs to happen every day. But this turns into a problem if most of that knowledge exists only in the owner's head.

You need to start documenting important business processes now, rather than as the deal is being considered. This gives potential buyers a much better sense of what to expect and will also take this job off your plate during the busy sales process.

These may include procedures for:

·       Sales

·       Customer service

·       Ordering

·       Inventory

·       Accounting

·       Hiring

·       Employee training

·       Marketing

·       Supplier relationships

·       Opening and closing procedures

Think of it as creating an instruction manual for your business.

Well-documented systems give buyers confidence that they will hit the ground running, and can take over without having to reinvent the operation.

 

5. Clean Up Unnecessary Expenses

Before selling, review your expenses carefully.

Many privately owned businesses have discretionary or owner-related expenses. While they make perfect sense while you own the company, they can make its true profitability harder for a buyer to see.

Relook your financial statements and identify expenses that are:

·       Personal

·       Unusual

·       One-time

·       No longer necessary

·       Not directly related to normal business operations

Your accountant or business advisor can also help identify legitimate adjustments or "add-backs" when presenting the normalized earnings of the business.

The point is not to artificially improve your numbers. It is to clearly show buyers how the business actually performs. The easier it is for them to see this, the better for you.

 

6. Review Your Customers and Revenue

Buyers want to know where your revenue comes from.

A business with a broad customer base will be seen differently from one where most of the revenue comes from a single customer.

Review:

·       Your largest customers

·       Customer retention

·       Recurring contracts

·       Repeat business

·       Revenue by customer

·       Revenue trends

·       Customer acquisition methods

If your business counts too heavily on one or two major customers, broadening your customer base before selling will make the business more attractive.

Recurring or predictable revenue can also be especially valuable because it gives a buyer greater confidence about future cash flow.

 

7. Review Contracts, Leases and Legal Documents

Don’t wait until a buyer starts into their due diligence to discover a problem with an important contract.

Review documents such as:

·       Commercial leases

·       Supplier agreements

·       Customer contracts

·       Equipment leases

·       Franchise agreements, if applicable

·       Licences and permits

·       Employment agreements

·       Partnership or shareholder agreements

·       Intellectual property registrations

Pay special attention to whether agreements can be transferred to a new owner.

For example, if your business depends on its location, having the ability to assign or renew the lease could be very important to a buyer.

Consider having your lawyer review key documents before the business goes on the market.

 

8. Deal With Problems Before Buyers Find Them

Almost every business has issues.

It may be an unresolved employee matter, old equipment, a customer dispute, overdue taxes, an expiring lease, a supplier problem or an outstanding legal issue.

Ignoring these concerns doesn’t make them disappear.

During due diligence, buyers are likely to discover them anyway, and finding unexpected problems late in the process reduces trust and can delay a sale, require renegotiation, or ultimately cause a buyer to walk away.

Identify any potential problems in your business beforehand and resolve what you can before listing the business for sale.

 

9. Make the Business Look Attractive to Buyers

First impressions matter.

For a physical business, this could mean improving:

·       Cleanliness

·       Signage

·       Equipment

·       Displays

·       Landscaping

·       Décor

·       Organization

·        

For almost any business, it can also mean updating:

·       Your website

·       Google Business Profile

·       Social media accounts

·       Marketing materials

·       Customer databases

·       Branding

 

These don’t necessarily need to be expensive or extensive improvements immediately before selling. Instead, focus on obvious issues that could make the business appear either neglected or poorly managed.

A well-presented business attracts the right kind of buyers and helps them envision themselves taking ownership.

 

10. Make Sure That You Have a Clear Growth Story

Buyers aren’t only purchasing what your business did yesterday. They’re purchasing what it can do for them tomorrow.

Make it easier for them by identifying real opportunities for future growth and expansion.

Could a new owner:

·       Expand into another territory?

·       Add another location?

·       Introduce new products or services?

·       Increase online sales?

·       Improve digital marketing?

·       Extend operating hours?

·       Hire additional salespeople?

·       Enter new customer markets?

·       Add recurring revenue?

 

You don’t have to implement all of these opportunity yourself. But by showing the path to clear, realistic areas to grow the business you can make it more compelling to prospective buyers.

 

When Should You Start Preparing Your Business for Sale?

By far the best plan is for business owners to start preparing well before they actually want to sell.

Starting early allows you time to improve financial performance, reduce owner dependence, sort out problems and bottlenecks, strengthen your management team, organize your records, and update other areas that could improve the value and appeal of the business. It can also help you to prepare mentally for the eventual separation from what you have created. It’s often a difficult step, even when you know that it is best.

Even if you aren’t planning to sell immediately, most of these steps will simply make your business stronger.

 

Is Your Business Ready to Sell?

A business is generally better positioned for sale when it has:

·       Clean and understandable financial records

·       Consistent or improving profitability

·       Documented operating systems

·       A capable team

·       Limited dependence on the owner

·       Transferable contracts and relationships

·       Organized legal documentation

·       A diversified customer base

·       Clear competitive advantages

·       Realistic opportunities for future growth

 

You don’t need your business to be perfect before putting it on the market. Few businesses are perfect. But you can certainly put it into a much better position to sell. 

The goal is to remove unnecessary uncertainty and make it easier for a prospective buyer to understand what they are buying, how the business operates, and see themselves in the role.

 

Frequently Asked Questions About Preparing a Business for Sale

 

How far in advance should I prepare my business for sale?

Start preparing one to three years before you intend to sell. This allows you time to strengthen financial results, improve your systems and manuals, hire and train your management team and address weaknesses that could complicate the sale.

 

What do buyers look for when buying a business?

Buyers initially look at profitability and cash flow, financial history, customer concentration, employees, contracts, assets, growth potential, competition, owner involvement and how easily the business can switch to new ownership.

 

Do I need a business valuation before selling?

A formal valuation isn’t needed in every case, but professional advice can help you understand an objective value range. This avoids pricing the business too far above or below market levels and the company’s true value.

 

What financial records will buyers want to see?

Buyers will request several years (usually 3) of financial statements, tax returns, revenue reports, payroll records, accounts receivable and payable, expense details and other documents during due diligence.

 

Can I sell a business that depends heavily on me?

Yes, although dependence on an owner can mean additional risk for a buyer. Having systems in place, delegating responsibilities and training employees before selling will make the transition easier.

 

Should I improve my business before selling it?

Any business has room for improvement, so the short answer is ‘yes’. Anything that you can do to streamline the sales process will be helpful. Start with foundational improvements that strengthen profitability, organization, transferability and buyer confidence instead of cosmetic upgrades. Like a house, the foundation must be solid before one can build.

 

Not Sure When You’re Selling Your Business?

Proper preparations before you list your business will make the sales process smoother and be seen as a stronger opportunity to prospective buyers. Taking the time to organize your business now will put you in a stronger position when the right buyer comes along.

Even if you don’t have a fixed timeline, any improvements that you do now will serve to improve your business for as long as you own it, as well as when you sell. The time to start is now.

 

BeTheBoss.ca connects Canadian business owners with people actively searching for businesses for sale. If you're ready to explore selling, you can start by preparing  the business, understanding its value and presenting the opportunity clearly to potential buyers.