How to Run Your Business When It’s for Sale
Selling your small business isn’t a one-and-done effort. It usually takes six months to a year or longer to close a deal, and it’s easy to lose sight of day-to-day management duties as you go through the sales process.
But becoming distracted by the sale process can have big consequences. If you don’t keep your eye on the ball, your business can lose value before you even get the chance to sign a purchase agreement.
Adding to the already complex process of running your business while you’re preparing to sell it is the need to keep your plans close to the vest. You might jeopardize the sale or weaken your bargaining position if your employees, customers, or competitors learn of your plans before the sale is complete.
Follow All the Steps for Selling, But Do It Quietly
Unless you’re okay with closing your company doors and walking away, you’ll have to prepare your business for sale by following these steps:
- Create an exit strategy
- Assemble a team of advisors
- Get a business valuation
- Clean up your books
- Improve productivity
- Market your business sale
You run the risk of letting the cat out of the bag at each juncture in the sale process, and confidentiality is key when you are selling your business. By announcing your plans to sell too soon, you might create anxiety among your employees, and your best workers might decide to jump ship, or worse, hightail it over to the competition.
Likewise, your customers might worry that you won’t be able to meet their needs and look for alternatives before you’re able to strike a deal for a sale. Your vendors might worry that the business is in trouble and become wary of taking on new orders or renewing contracts. And your competitors might come after your customers by persuading them that your future is uncertain.
Your employees, customers, and vendors are important business assets, and any one of these scenarios threatens to hurt the value of your business. By having a solid exit plan well in advance of your anticipated sale date, you’ll be able to implement all the steps in the sale process without disrupting day-to-day operations and telegraphing your plans to sell.
Delegate the Sales Process to Professionals
The right team of advisors can steer the sale of your business and free up your time to keep running the company. Your team might include:
- An attorney who can navigate legal requirements of the business sale, such as overseeing the due diligence process and drawing up documents like confidentiality agreements, non-disclosure agreements, and non-compete agreements. An attorney can also write a letter of intent and a purchase agreement and assist in negotiations with buyers when the time comes.
- A CPA who can make sure your financial statements, tax returns, and other financial records are up to snuff and ready for inspection by prospective buyers.
- A business broker who can help you get the best price and deal structure by maximizing value, marketing to the right buyers, and negotiating the best terms
- An appraiser who can provide an objective business valuation and set a sale price for your business
You might also want to loop in family members who can support you through an understandably emotional time. If you are selling because you want to retire, you might also want to consult with an estate planner or wealth advisor to help with planning your financial future and provide a strategy for potential tax liabilities related to the sale of your business.
Keep Steering the Ship
The worst thing you can do is to develop tunnel vision when it comes to running your business. Rather than make decisions that anticipate the sale, stay focused on the long term. You might expect to be sipping margaritas on the beach in two years, but it’s critical to keep running your business as if you’ll be the business owner for years to come.
Continue Sales Growth and Increasing Profitability
Just because you’ve been relying on cash flow, as opposed to actual profit, to measure your business success doesn’t mean potential buyers will feel the same way. They’ll want to see strong revenues and profits and be confident of the growth potential of your business. You’ll have to run your business with those same goals in mind.
Revise your business plan to show the company’s potential for future growth. Include sales forecasts three years out and an analysis of industry trends that bode well for continued interest in your products and services. Include a discussion that shows where the market is expected to be three years out and how your products and services fit into trends and customer demand.
Nurture repeat customers and seek out new recurring revenue streams such as subscriptions or leasing. Recurring revenue tells buyers that your business performance is predictable and they can rely on your forecasts.
Expand your customer base, especially if the lion’s share of your sales comes from a handful of customers. Potential buyers will want to see that your business is on solid footing and not dependent on just a few customers.
Explore ways to cut expenses to increase profitability.
Formalize Your Processes and Procedures
Document systems and procedures so buyers can feel confident that the business will operate efficiently once you’re gone. Consider creating manuals for your operating procedures and keep records of important decisions you make and the reasons behind them.
Maintain Customer Relationships
Focus on customer experience and satisfaction. Maintaining and improving customer relations leads to higher customer retention and loyalty. Customer lists are a valuable intangible asset, and for some businesses one of the most valuable assets buyers consider when purchasing a business.
Develop Your Team Members
Develop skills among your key employees and cross-train them. Small business owners often take a hands-on approach to managing the business and micro-manage down to the last detail, but potential buyers want to know that your business can run successfully without you.
Follow the Golden Rule of Selling a Business
The golden rule of selling a business is transparency. Buyers want to reduce as much risk as possible so they’ll want to know exactly what they’re buying. Business sellers should eliminate as much guesswork as they can for potential buyers.
Make sure your financials are clear as a bell. Organize the past three to five years of records, and use standard metrics for profit and loss statements, balance sheets, and the like so that they are readily recognizable and understood.
Recast your financials to reflect the accurate profitability of your business. Use seller’s discretionary earnings (SDE), a metric to measure the full financial benefit a business generates. By adding-back certain bottom-line expenses, such as owner’s compensation and benefits, buyers can estimate what they can expect the business to generate for them.
Here are some additional do’s and don’ts to follow when you are planning to sell your business:
- Don’t make major changes to your operating systems, software, or procedures unless absolutely necessary. Buyers want to rely on past performance that’s withstood the test of time.
- Don’t change equipment for the same reasons unless your equipment must be upgraded to function.
- Don’t announce your plans to sell too early. Tell only those essential to the sale process and have them sign non-disclosure agreements.
- Don’t make major changes to your employee roster. A new owner will want to rely on your employees to help understand operations and ensure a smooth transition.
- Do organize company records such as licenses, permits, incorporation documents, and annual meeting minutes.
- Do publicize wins such as new contracts (as long as your clients agree to the announcement) and employee promotions. Using social media to polish your image will enhance your reputation and attract would-be buyers.
The process of selling a business usually requires between six months to a year, and juggling the daily management of the business while going through the sales process can be a challenge. To maintain value and keep things running smoothly for your employees, customers, and vendors, consider hiring a team of advisors to help navigate the sales process. To find the best broker to help you sell the business and manage the process, so you have time to focus on running the company, check out BizBuySell's business broker directory.