Succession planning provides the roadmap for the sale of your business. Once you've decided to sell and worked with your team of advisors to establish the framework, it's time to start preparing the business for sale—enhancing its value—to maximize the selling price.
Your advisors have determined the value of your business or, more accurately, a range of values. The final determination of value depends on the potential buyer's perception of your business.
There are many ways to enhance the value of your business and create a more favourable impression. These measures, usually called value drivers, can effectively increase the sale price and also get you more favourable deal terms by:
- Demonstrating that your business is well positioned for the future.
- Lowering the amount of perceived risk to buyers.
Business Value Drivers: Preparing to Sell for More
Following is a brief look at some of the important business value drivers:
A history of consistent and, preferably, growing profitability will give buyers the assurance and predictability of future performance. While you can't change the past performance, you can take measures, if you're planning several years ahead, to improve performance leading up to going to market.
You should ensure you have good financial controls and have your financial statements reviewed or audited by a CPA firm.
Among other things, a business sale lawyer will:
- Make sure all corporate legal documentation is current.
- Examine any shareholder agreements prior to the sale to make sure there are no unforeseen problems.
- Examine all your contracts and agreements, such as:
- Premises leases
- Employment agreements,
- Franchise agreements
- Supplier and customer agreements, etc.
Your Involvement in the Business
Buyers don't like to see a business that is overly reliant on you. If you're involved in all the day-to-day decisions, and your clients expect to deal exclusively with you, buyers will perceive a high degree of future risk when you leave the business.
Your Management Team
Related to the above is the quality of your management team. If the business can run effectively with minimal involvement from you, and if the buyer has reasonable assurance that your team will stay after you leave, the buyer's perceived risk is drastically reduced.
If a significant portion of your revenues is derived from a few major clients, this represents another major risk factor for buyers. If possible, take steps to diversify your client base when preparing to sell your business. If not, you could try to have your key clients sign long-term contracts with you.
Market & Competition
What is your position in your market? Is your business a market leader or is it one of several or many similar businesses? If you don't have a strong differentiator and you're planning far enough in advance of going to market, consider working with a business consultant to explore opportunities to develop a stronger market presence or perhaps develop a focus on a specific niche in your industry.
Buyers like to know that there are very real opportunities for the business to grow, such as expanding into new markets or attracting a different group of clients. When preparing a business for sale, consider developing a realistic, formal plan for growth.
Do you have a formal statement of your business vision, mission, philosophy, and values, and if so, are they an accurate reflection of the true business culture? If you've never done this work, you might consider working with a consultant to develop an authentic brand as you are preparing your business for sale.
First impressions are lasting impressions. One of the first things buyers will see is your website. You should ensure that your website has a wow factor, or at least presents your business in a favourable light. The quality and appearance of your website is a reflection of the quality of your business.
The more of these measures you can address when preparing your business for sale, the better the chances of meeting or exceeding your objectives for a successful sale.
Let Us Help You Prepare Your Business for Sale
Preparing your business for sale will involve a number of legal requirements. With many years of experience helping business owners properly prepare, we can make your life easier. Contact us today.