Selling your business is a big decision that requires a lot of preparation. To sell for the best possible price, preparing your business for sale is vital.
If you look at your business, what are you actually selling? Business owners often believe there is a lot of value in their business. But, when you look a little closer, the business owner turns out to be the most valuable asset; working in the business for 60 hours a week and being three or four times as productive as the employees within the business.
Here are the three most common questions asked when preparing a business for sale:
Is my business ready to sell?
Consider what you are actually selling and how involved you are in the running of the business. If you’re a one-man-army or a very small business providing a service, for example plumbing, are you just selling your client base and equipment? Do your clients have a relationship with you, the business owner, or with the company? These are all factors that will be considered through due diligence and can seriously affect the sale price for your business.
The process of preparing a business for sale can take as little as a year, or as long as six years! It’s dependant on the business’s current position and how quickly you can effectively implement change. On average it takes around three years to ready a business for sale.
Will my business survive without me?
Larger companies might still run without the business owner, but if they’re still doing a lot of work in the business they might be one of the most valuable assets. Once the business owner leaves, their role may have to be replaced with three employees just to get the same result … and that means three more salaries!
Also think about how replaceable your skills are. If the business owner is the ‘brains’ behind the whole operation then it’s unlikely to be able to survive without them.
Professional service businesses, such as accountants and solicitors, are usually the most difficult to prepare for sale. The business owner may feel their value in the business is as the ‘fee earner’ opposed to actually running the business. If the business owner has the relationship with all the clients, how likely are the clients to stay with the business once the owner has sold?
Are there any alternatives to an outright sale?
An ‘earn out’ could be offered. This is where a percentage of the business’s value is paid now on the agreement that the business owner stays and works for a certain amount of time. The owner receives a payment each year based on performance, but they’ve lost control of business, which could impact the profits. Working on an ‘earn out’ basis might mean that the business owner doesn’t get the pay out they are expecting.
Regardless of whether you plan to sell your business, it’s important to build a business that’s prepared for sale and operates without the need for the business owner. This provides more options when it does come to sell. Business owners can sell and walk away whenever they want, or they can chose to stay in the business because they want to, not because they have to.
Andy Sleet is an expert in readying businesses for sale. If you’d like to speak to Andy about preparing your business for sale, schedule a free one-hour consultation. This is not a sales call and is designed to help you identify the areas of your business that are out of balance.