Selling your business isn’t something that happens overnight. It’s a process that involves understanding what business buyers want and setting the stage to present your business in the best (and most accurate) light.
Needless to say, selling your business isn’t a decision that should be taken lightly. Not only do you need to be sure the time is right and you’re selling for the right reasons, you need to be prepared for the sale. Is the business saleable? Is it an attractive acquisition target? You’ll need to identify and fix any potential problems, as well as think about what factors would make your business attractive to a purchaser.
Ready to sell your business? Here’s what business buyers want.
Identifying and Resolving Issues
One of the first things to look at when “putting a fresh coat of paint” and making repairs to your business is your leadership structure. What does your management team look like and what capabilities do they have? How critical are you to the overall business? Is there someone who can step in and fill your role should you exit and retire? Having a team that manages key aspects of your business is an essential for positioning your business for the best valuation.
Next, make sure you have good financials. At best, your financials should be audited, but at the least, you should have them reviewed. Analyze your accounts receivable and make sure everything is up to date and that you don’t have aged receivables that will never be collected on. Also, do an inventory check to ensure that you don’t have slow-moving or obsolete inventory that’s still on your books. Clean things up so that when you do sell, the process will move along more smoothly.
Customer concentration is another concern, as buyers will be hesitant to invest in a business where a cyclical market could result in declining revenue and earnings or where the customers only have a relationship with the owner. Try to “spread the pie around” a bit in terms of customer base, making sure that customers have long-term contracts and will continue working with the people who will still be onboard in the new organization. Also look into minimizing market downturns due to cyclicality by developing in other end markets.
It’s also important to look at things such as environmental issues and minimize risk by cleaning up any issues or purchasing an insurance policy to cover any issues and internal systems that are being used to actively manage the company.
What Business Buyers Want
As you make repairs and tidy things up, it’s important to do so while thinking about what business buyers want. What is their purpose for buying? Are they looking to add new capabilities and industries that allow for cross-selling opportunities or increase market share? Keep this in mind as you market your company for sale. Also, consider the other factors buyers want to see before they commit.
First, investors like to see growth and profitability. Before you sell, you should work towards consistent top-line growth on an upward trajectory. Excellent growth margins and EBITDA margins also demonstrate that your customers not only see value in your service/products but are willing to pay a premium for them. These numbers represent how well the business is being managed.
Size may also be a factor. Larger companies can be easier to sell. If your business is smaller, that doesn’t mean it’s not sellable; it simply means you’ll have to focus more on profitability and define the buyers who would have an interest.
Finally, investors are extremely concerned with the level of dependence on the current owners. Having a business that is 100 percent centered around the founder may be problematic. Even in cases where a strong management structure is in place, the buyer will typically ask the current owner to stay onboard for a period of time to enable the transition process to go smoothly.
Selling a business can be an intensive process, but by asking what business buyers want and working to tick those boxes beforehand, you’ll be able to effectively prep your business and make the process go smoothly for everyone involved. Got more questions? The team at MelCap Partners has answers.