If you are planning to sell your business someday, you should start planning for it as soon as possible. Here are some of the things you should do now:
- Review your tax situation with your accountant and lawyer to be sure that your taxes will be minimized when the sale is made. This is particularly important if you are a “C” corporation. Selling the assets of a C Corporation usually results in double taxation to the owner.Ask your accountant about converting to an S corporation.
- Be sure that your accounting records are in good shape. Buyers want at least three years of financial records. Your business and tax records must be consistent with each other. Be sure that you can explain any variances between them. Expenses must be recorded consistently from year to year. Be sure that the buyer can verify any perks you take out of the business.
- Buyers are looking for an income and an opportunity. They need to feel comfortable that the business will continue to generate the income they need. They also want to be their own boss and see an opportunity to have a growing, successful, business.
Here are additional steps you can take to make the buyer comfortable.
- Document your procedures, business practices, and everything someone would need to know to operate the business. One reason that franchises sell for more is the support system they give to the owner. The more you can duplicate this, the more desirable your business is. It makes it easier for the new owner to learn the business and train employees.
- Develop managers and cross-train employees as much as possible. The buyer wants a business that can operate without you. Cross training makes the business less dependent on particular employees.
- Control your expenses. Since the buyer is looking at three years of results, you need to control expenses well before you put the business up for sale. As a rough estimate, every dollar in expenses that are saved can generate two or three dollars of additional sales dollars. You need to continue to make the capital investments that the business needs. But, don’t make them when you get closer to the sale date unless the payback period is short.
- Negotiate a lease with provisions that will not hinder the sale. The landlord will want to approve any buyer, but you can request that this consent is not unreasonably withheld. If you are personally guaranteeing the lease, have it end when the buyer takes over. Be sure the lease is in writing. A buyer will need a lease, with options, of at least as long as any third party loan. An SBA 7a loan normally has a ten year amortization.
- Spruce up and clean up the business. Take an objective view of your business. Get rid of the clutter. Organize it. Make it look attractive. Give it curb appeal for any buyer that drives by.
- Finally, but not necessarily the last thing to do, is to diversify your personal life and finances. Think about what you would like to do after you sell the business. Develop outside interests. Make investments outside of your business.
These are some of the more important things to do to maximize the price you will get when you sell. By doing them now, you and your business will be prepared for the sale.
BayState Business Brokers, 61 North Beacon Street, Suite 203 Boston, MA 02134
T: 617-562-5700, F: 617-562-5701