When preparing to sell your business, it’s helpful to consider the buyer’s point of view. Business buyers usually prefer low risk with high reward when they consider investing in small businesses.
They look for good cash flow and solid systems that offer the potential for further growth.
Buyers will need accurate and complete information to decide whether your business is right for them. And you can help by understanding who your potential buyer is and what they want to know about your business.
Buyers usually consider these six factors when evaluating a business prospect.
|1| Why you’re selling the business
This will be one of the first questions a prospective buyer asks you. You should prepare an honest response that doesn’t suggest a need for urgency.
Owners commonly sell their business for one of these reasons:
- Retirement or illness
- To realize a capital gain
- Uncertain business future
- Nobody to take over
- Their heart isn’t in the business
Remember, it’s essential to be honest.
|2| The timing of the sale
You’ll get the best deal for your business if you plan the sale well ahead of time.
This gives you the chance to increase profits and sales, as well as your customer base. All these factors make your business more attractive to potential buyers.
Knowing that you planned the sale well in advance indicates that you’re not being forced to sell in a hurry.
|3| Preparation and information
To be prepared for the most likely questions prospective buyers will ask, make sure you:
- Outline your competitive advantage and unique selling points.
- Demonstrate how you’ve successfully handled the ups and downs, especially if you own a seasonal business.
- Have all pertinent information on hand, including leases, customer agreements and intellectual property. When do they expire or require renewing?
- Be clear about whether you’d agree to stay with the company temporarily to ensure a smooth transition.
- Know what levels of stock and investment will be required in the foreseeable future.
Buyers will be aware that there’s a risk of customers leaving after you sell. You’ll need to reassure them that your customers are loyal to the business rather than to you.
|4| Financial statements
Potential buyers will likely want to view at least three years of financial statements, including income statements and balance sheets.
They’re buying into your business’ future profitability, so explain any differences between what the finances show now and what they could show later.
Gather your financial statements and tax returns dating back three to four years and review them with your accountant. In addition, develop a list of equipment being sold with the business.
Then, create a list of contacts related to sales transactions and supplies and dig up any relevant paperwork, such as your current lease. Create copies of these documents to distribute to financially qualified potential buyers.
|5| Sales and profits
Ideally, you can show a trend of increasing sales and profit. So, focus on identifying which costs you can remove.
- Can you buy materials cheaper?
- Can you switch suppliers of overheads (like energy and internet costs)?
- Can you be more efficient with processes so you don’t need as many staff or contractors?
Talk to your staff and ensure they’re making the most of techniques like up-selling and cross-selling. Then, review their performance so that customer satisfaction is optimal.
Demonstrating how sharp your internal processes are will show buyers that your business functions efficiently. And having sales records on hand to prove it is essential.
|6| Up-to-date business valuation
Your business is worth what someone’s prepared to pay for it—and what you’re willing to sell it for.
There are several ways to value your business. Which one you choose depends on:
- What kind of business you own
- Who you’re thinking of selling it to
- Your reasons for selling in the first place
Talk to a business broker about the most common valuation methods and which suits your business best.
Final thought
When you’re getting your business ready for sale, don’t forget the physical aspects.
Update your signage and marketing materials so that you make good first impression when buyers come to view your business.
Your premises should be immaculate and orderly, with friendly staff and lively activity. New signage, fresh paint and clean workstations will help the overall impression.
When you’re getting ready to sell, try to keep the buyer’s point of view in mind. And keep asking yourself: What would I be looking for if I were thinking about buying this business?
