5 Things to Consider When Selling a Business

When preparing to sell a business, owners should consider implementing structure through standardized processes and systems, investing in the team, planning for the future, understanding key value drivers, and engaging with experienced transaction advisors. These principles will create greater intrinsic value today and serve as a foundation to maximize value in an eventual sale.

As a business owner, the decision to sell can be complex and require careful consideration. One key question to ask is how to maximize the value of the business when the time comes to sell. The best way to do this is to take a long-term approach to building value in the business well in advance of a transaction. Implementing these principles effectively will create greater intrinsic value today and provide a strong foundation for maximizing value in a future sale.

1. Create Systems: As famously talked about in the E-Myth by Michael Gerber, having a standardized system allows businesses to scale success without the constant involvement of the entrepreneur. Developing organizational systems allows for the creation of repeatable processes and procedures that can be transitioned under new ownership.
   
   Part of creating systems also means the business is growing up. And that should also include having audited or reviewed financial statements prepared by a CPA to increase credibility with lenders, insurance companies, and other stakeholders, as well as potential investors and buyers. Accurate and organized financial records are essential during a sale as they help with buyer due diligence, maintain the momentum of the deal, speed up the transaction timeline, and allow management to focus on business performance.
   

2. Build a Team: Owners should build a team of strong managers who can eventually take on key decisions and lead the business in the future. Investing in employee training, motivation, and empowerment can help reduce the owner's workload and create a productive and engaged workforce. Having a strong management team and investing in talent can increase the value of the business by reducing the risk of owner dependency.
   
   Having a well-structured management team and investing in talent also helps to ensure a smooth transition when the business is sold. The new owners will have the confidence that the business is in good hands and can continue to grow and develop. Furthermore, having a team of experienced managers can help to identify potential opportunities and risks that the new owners may not be aware of. This will help to ensure the business continues to be successful in the long-term.
   

3. Plan for the Future: When purchasing a business, buyers are looking at its potential future rather than its past performance. Although past growth can be a sign of future success, it is the management team's long-term vision for the company that will be the deciding factor. This vision should be outlined in a formal plan with measurable goals and milestones to ensure the business is managed and grown effectively. When it comes to selling, buyers will be focused on the company's projected revenues and earnings, and a well-crafted strategic plan will demonstrate the business's vision, growth potential, and how it will be achieved.
   

4. Understand the True Value: Valuing a private company can be difficult, an oversimplified approach prevents owners from identifying the key drivers that unlock value. Routinely updating the valuation provides a framework for owners to periodically benchmark how strategies and tactics are affecting the business’s value and proactively change course as needed.
   
   Having a thorough understanding of the business's value can also help owners to make more informed decisions about the future of the business. This can include decisions about whether to invest in new products or services, or whether to expand into new markets. Knowing the value of the business can also help owners to make more informed decisions about the best way to grow and develop the business.
   
   Ultimately, understanding the business’s value is important in determining whether or not to sell. Too many owners have unrealistic expectations of value and end up wasting time running a futile sale process.
   

5. Hire an Advisor: Selling a business is complex, time-consuming, and distracting. Most owners have limited experience in business sale transactions and are better served working with experienced advisors. It is best practice to assemble a multidisciplinary team of advisors well in advance of a sale, which enables owners to build rapport and trust. Skilled advisors can offer valuable and objective advice throughout the life of the business. During the transaction, the advisors’ familiarity with the business and relationships with the owner enable them to more effectively drive the process and structure a transaction that best achieves the owner’s objectives.
   
   Having the right advisors can also help to ensure a smooth transition when the business is sold. They can provide guidance on how to transfer ownership and ensure that all legal and financial requirements are met. Furthermore, they can help to negotiate the best terms for the sale, ensuring that the owner gets the best possible outcome.

Overall, it takes time and discipline to increase the value of a business and prepare it for a successful sale. Proactive business building and careful planning are essential for maximizing the value of the business and increasing the chances of a successful transaction. Value is not created overnight and must be developed over time. By following these key considerations, business owners can increase the value of their businesses and make sure they are ready for a successful sale.