Article Summary of 6 Ways To Prepare Your Business For A Sale:
- 6 Ways To Prepare Your Business For a Sale
6 Ways To Prepare Your Business For A Sale
I’m always reading up on “how-to” articles on how to prepare your business for a sale. As an entrepreneur who buys & sells businesses, t’s a fascinating topic for me.
Last month, I came across a Forbes article that knocked me off my feet. It was called Selling Your Business Later: 5 Must-Do’s Now.
If you are reading my post now, know that this article was written for entrepreneurs like you and me.
Here’s what caught my attention.
“Most entrepreneurs dream of one day selling their business and cashing in big. In reality, here’s how most business owners will end up:
- Dropping dead at their desks
- Mumbling to the lamp at the nursing home, or
- Just maybe, drinking daiquiris on the beach and watching their portfolios on their iPhones”
We all envision #3, right? We fantasize about a sale in the future, but we fail to prepare to get to that point.
If you are still on the fence, jump over to my business checklist for seven questions to ask yourself when considering a sale.
However, if you’ve decided that you don’t want to work on your business during retirement, you need to start preparing to sell your business today.
Are you ready to sell? Find out by getting your PREScore today!
Here Are 6 Ways To Prepare Your Business For a Sale
#1. Clean Up the Books
I can’t tell you how many times bad bookkeeping has slowed or derailed a sale. When you decide to sell, you need to review your books.
Below are seven symptoms of unhealthy books:
- Unauthorized withdrawals
- Excessive business expenses
- Negative cash balances
- Incomplete business loan records
- Bank fees
- Poor asset estimation
- Other ledger errors
#2. Sell Old or Useless Equipment
Some businesses, especially older ones, need a good spring cleaning. Get rid of some of the old equipment or other assets lying around. You don’t want to be stuck with this problem during a sale. Scrap it or auction it early so you’ll be clutter-free for the sale.
#3. Update the Financials and Tax Documentation
With due diligence right around the corner, a buyer will want to know the health of the business. Make sure your financial statements for the last three years (and year-to-date) are accurate. As a rule of thumb, make sure you these financial documents are pristine and ready to go:
- Profit and loss statements
- Income statements
- Balance sheet
- Tax returns for the past 3 years
Speaking of tax returns, make sure tax payments are up-to-date. That includes sales tax, income tax, and payroll tax, among others.
#4. Take a Good Look at the Corporate Structure
Are you preparing to sell an LLC, limited liability partnership, or sole proprietorship? Each business structure will necessitate a different approach to selling. Furthermore, different structures have different tax issues that needed to be resolved in order to maximize the proceeds. Talk to your legal representatives early and often.
#5. Check on the Business Documentation
Selling a business in Texas is hard work. I use a list of 13 key documents, each of which needs to be up-to-date and available when the time comes for a sale. Due diligence can stretch on if the business documents aren’t ready. Don’t get trapped because your documentation wasn’t prepared.
#6. Have the Business Appraised
Know your worth. In order to bargain from a position of strength, you’ll need an accurate gauge of just what your business is worth. Don’t try to eye-ball the value. A third-party will ensure that the price is reasonable, and that more importantly is an amount that a buyer may be willing to pay.
In addition to an appraisal, research the list price of similar businesses in and around your area. Market research will help you determine the amount you can expect your business to sell for. Websites like BizBuySell.com and BizQuest.com are good places to start for information on your local market.
Good Preparation Leads to a Good Sale
“The question I ask myself almost every day is, ‘Am I doing the most important thing I could be doing?’” — Mark Zuckerberg
This quote from Mr. Zuckerberg is one of my top 19. If you are planning and preparing for a sale, this is good advice to keep in mind. Why? It’s forward-looking. That and asking yourself that question will keep you on track, both during the sale and long after.