Last Updated: 25-September-2012
Making your business 'Saleable'
Without exception, no aspiring business owner should actually take the plunge without a clear vision and goals for selling or cashing out of the business at some point in time. Even those owners who intend to pass the business on to family members should manage the business as if they are going to sell to an independent third party.
So what does a successful business owner need to do in advance and what practices must be a part of the daily routine to make a business saleable? Below are four key considerations:
1. No business can be sold successfully without accurate and complete financial statements for at least three years (profit and loss statements and a current balance sheet).
2. Know what the business is worth. I strongly encourage all sellers to consult with their accountant and attorney prior to putting the business up for sale. In addition, if possible, speak with others in the same franchise organization or industry who have sold their business or bought an existing business to determine how they arrived at a selling/buying price (e.g. a certain multiple of free cash flow, or “EBITDA”).
3. The business operation should be “clean” and free of confusing or unreasonable expenses. Examples of such expenses include paying relatives unreasonably high wages or for work not actually done, using company funds for personal expenses, mixing personal and business debts to operate the business.
4. The management structure of the business should be such that the new owner can either step in and assume day-to-day management of the business or hire a manager at a competitive salary while earning a reasonable paycheck and profit. The business will not be very attractive if the new owner will have to make wholesale changes to achieve profitability and efficiencies.
In addition to the above, it is very helpful if you can paint a clear picture for the buyer regarding what the business can look like in one, two and five years with competent leadership and management. You need to be in a position to coach the prospective buyer in this regard. Finally, have a plan that you can share with prospective buyers to retain key personnel and ensure an easy transition. Giving a buyer that peace of mind carries an “emotional value” that will allow you to get a premium for your business.