Quick Questions to Ask Yourself Before You Sell Your Business
“The biggest question however is not necessarily when, but is your company ready to sell?”
After years (sometimes decades) of building your business, you have decided it’s time to take on the next phase of your life and have started considering options of whether to sell your business. Whatever motivated you to decide to sell your business needs to have a strong conviction, but what matters next is timing. Here are a few things we look at, and most buyers will too, when considering selling, and form the groundwork to increase valuations as well.
Are the Revenues Growing, Flat or in Decline?
While this seems relatively obvious, it’s important to gauge the current and potentially the future growth trajectory of sales. Buyers want to see (in one word) growth. Businesses that are continuously growing, even by a small percentage, will command a greater premium that businesses that are in decline. In so many cases, we see business owners who are tired, worked long hours for years, and eventually decided to focus on other things, and have taken their foot off the gas pedal. Over a period of years, the business slowly starts to decline, and it gets tougher for the business owner to command a premium for their business. If your revenues continue to grow, and you’re still acquiring new customers this might be a great time to consider selling your business. Lastly, if you really want to increase your premium, any contracts with customers or suppliers you might be able to secure will bolster the value of the business as it tends to lower the risk to the buyer.
Are you instrumental to the Business?
This is such a key question that most buyers ask, especially if they are not from the same industry. If the business owner is an owner operator, and does everything from managing sales, to bookkeeping, it might be a great time to evaluate where your time is being spent. It’s no secret that businesses that have a management team in place, where the owner is semi-redundant to the day-to-day operations of the business, tend to command a higher premium, as they are lower risk to buyers.
Depending on the size of the business, a buyer wants to ensure that the customer, supplier, and employee relationships, aren’t entirely tied to that one person. It’s also important to ensure that if you do more than a few tasks as the owner, the new buyer will have to hire people to take over those tasks, which in itself is an additional expense to them. This is also a great segue to our next point.
Are Key Employees already in place?
In its essence, any business coach, business owner or leadership book will tell you that great employees make or break a business. It’s all about having the right people on the bus, and a well-run business will have the right people who, mostly manage themselves, and have been working in the business for some time.
Having the right employees, who are well looked after, and have been working for the same business for a few years, are great signs that will increase the value of your business. We always get a bit nervous when the average employee attrition rate is less than 6 months, because this might indicate potential instability of future operations. If you feel that you’ve built the best team, then it might be another feather in your cap that will increase the selling price.
What is the state of your equipment?
While this is not necessarily the first thing that we look into, it is definitely noteworthy, and is highly dependent on the industry. Some industries don’t have huge technological changes for long periods of time, but this isn’t as common as it used to be, and old equipment will be another point that will lower the value of your business. Having the right tools is key, both for your employees but also for providing the best value for the new owner. There is no worse feeling than buying a business and then having to spend an additional unplanned amount to update key equipment in the business. If equipment does form a large part of your business operations, most buyers will also get the equipment appraised to get a good idea of the current market value, and lifespan left on the equipment. It also adds value if you conduct the appraisal yourself, as it benefits the seller with setting set the value and price of the business upfront.
Does the business have proper documented systems in place?
Most business owners are pretty good at setting up systems that directly contribute to the sales process, and operations, as these directly benefit their clients and employees alike. Where the ball usually gets dropped is, when it comes to systems such as sales reporting systems, inventory systems, human resources systems, data warehousing and any form of basic analytics. If a business was started over 30 years ago, chances are that they are still working with systems that were set in place over the years, but may not be the most efficient today. The stronger the reporting in your business, the more information will be available to your M&A Advisor, which might increase valuations. When it comes to sale time, having all your data easily accessible and stored correctly, will help speed up due diligence, and close the deal quicker.
In conclusion, these form some of most rudimentary discussion points, if you have started considering putting your business up for sale. While you may need to spend some additional time and money to get your business “market ready” it almost always increases the valuation of the business, and helps the deal close quicker. If you can confidently answer these questions in a positive way, then you might be much further along than you think and is a great time to setup calls with your M&A Advisor about selling your business.
If you’re interested to connect with one of our M&A Advisors, Click Here and some one from our team will reach out within 24 hours.