How to Prepare Your Business for a Sale
For most business owners, the sale of their business is the deal of a lifetime. It’s a transaction that could be worth millions of dollars, potentially setting you and your family up for generations to come.
But what many entrepreneurs fail to realize is that the process of selling your business actually begins months, if not years, before you ever sit down at the negotiating table with an interested party. To maximize the value realized in an exit, business owners must prepare fully for the sale.
In this overview, we explore the best practices business owners should consider when preparing their business for a sale. By following these steps, business owners give themselves the best opportunity possible for a smooth transaction that delivers a life-changing financial outcome.
5 Steps to Preparing Your Business for a Sale
Regardless of whether you’re retiring or have scaled your business to a point where an exit makes strategic sense, preparing for the sale of your business is non-negotiable. Fail to prepare, and you prepare to fail.
Selling a business is not an overnight process: while negotiations and closing might take a couple of months, the preparation phase takes much longer. By putting in the hard work to prepare for the transaction, business owners can streamline the process and proactively address issues that could hold things up further down the line.
By following the five steps outlined below, entrepreneurs can enhance the likelihood of a successful outcome for all parties:
- Draft your support team
- Determine goals
- Compile and clean up financial information
- Create a business forecast
- Keep your eye on the ball
It’s important to note that all of these steps should happen before entering negotiations with any interested parties. In some instances, a business owner might complete all of these steps before even marketing their business.
1. Draft Your Support Team
Selling a business is a team sport: one where drafting first-round accounting, financial, and legal talent can make all the difference. The professionals you will need include:
- Sale Readiness Advisors and outsourced finance tea,
- Tax Advisor
- Investment Banker/Business Broker
These professionals work together as a cohesive team to handle considerations at every stage of the sale. Perhaps your most important hire is a Sale Readiness firm: experienced sell-side advisors that can orchestrate the process and introduce you to other professionals.
G-Squared Partners provides Sale Readiness Services to business owners in a wide range of industries. We’ve led over 50 successful M&A transactions and are well-equipped to help you sell your business. Contact an advisor today to learn more.
2. Determine Goals for the Transaction
No two business sales are the same. Every entrepreneur has different goals for the sale of their business and these should be established at the very outset of the sale process.
Some business owners may want to maximize the value they receive from the transaction, whereas others may prioritize a seamless closing process that allows them to ride off into the sun sooner rather than later. There’s also the question of your employees and customers: does making sure they are taken care of by the new owner matter to you?
All of these considerations shape the sale process, and it’s important to have a clear understanding of your goals and priorities before you sit down at the negotiating table.
3. Compile and Clean Up Financial Information
Reliable, timely financial statements are key to understanding how your business has performed. When buyers undertake financial due diligence, they expect to see at least three years of financial statements (on a monthly, quarterly and annual basis) that clearly display the evolution of the business’s revenue, expenses, and profitability over time.
During this process, you might discover gaps in your financial history or unexplained trends. Take the time to dig into these and understand what happened and how you can address it going forward. It’s vital to tackle these issues proactively and ensure your business is on firm financial footing before you enter the sales process.
All of this financial information should be compiled into one central document that’s easy for your team to share with potential buyers. In some cases, you may centralize this financial information and additional confidential information into a data room that can be shared with prospective buyers.
4. Create a Business Forecast
Having robust financial information that potential buyers can look back at is important, but perhaps just as important is outlining a sustainable long-term plan for the business. This forecast highlights growth opportunities, lays out the strategic framework for the business, and provides data-backed strategies for the new owners to follow. The forecast should include projected income statements, balance sheets and cash flow along with projected relevant metrics and detailed assumptions.
Of course, whether the acquirers of a business choose to follow this forecast is completely up to them. But the existence of this forecast proves the long-term viability of your business, highlights important future plans (such as the launch of a new product), and gives potential buyers confidence that your business will prove to be a good investment.
5. Keep Your Eye On the Ball
With all this activity, it can be easy for business owners to fall behind on the day-to-day management of their business. The sale of your business is a stressful time: you’re getting ready to hand your life’s work over to someone else. But before and during the sales process, you cannot afford to take your eye on the ball.
If anything, it’s more important than ever that your business continues to hit its numbers and satisfy financial projections. As the leader of the business, you should continue to work closely with your team the same way you always have.
This struggle to stay focused on the day-to-day while preparing to run a sale process highlights the importance of bringing in trusted advisors. By delegating the finer details of preparing the business for sale to a team of experienced Sale Readiness consultants, business owners can keep their focus on the daily operations of their business while still playing an active role in the sales process.
G-Squared Partners: Proven Sales Readiness Services
Selling a business is extremely complicated. There are countless moving parts, multiple different parties involved, and often, a lot of money at stake. The gravity of this transaction demands the support of experienced advisors who have the skills and experience to deliver a successful outcome.
At G-Squared Partners, our Sale Readiness team focuses on exactly that. Together, we’ve advised on dozens of business sales and worked with business owners from the very beginning of the preparation stage all the way through to closing. Our clients value our comprehensive approach and the peace of mind we provide through what can be a tedious process.