A sale-ready business isn't just more likely to sell — it's also more enjoyable to run.
You may not be planning to sell your business anytime soon, but running your company with its potential sale in mind may help you be more successful right now. "A sale-ready business is a strong business on an upward trajectory, which makes it a business that's enjoyable and profitable to own," says Barbara Findlay Schenck, author of Selling Your Business for Dummies. "As an analogy, I tell owners to think about how, after getting a car detailed for resale, owners often look at it and wonder if they really want to sell it. The same is true for a small business: Once the business is in great condition, it not only becomes easier to sell, it also becomes more attractive to own."
These five tips can help you build a salable business.
Understand your financials. "Selling a business is like selling anything else—it's all about the value perception to the buyer," says Daniel Van, EVP, business banking performance executive at Regions Bank. Among the most important factors in shaping a potential buyer's perception are profitability and other key financial metrics, such as revenue, current growth, and expected growth.
Keep good records. You'll need to demonstrate your business's success via easy-to-understand financial statements. "If small business owners are operating their businesses in such a way to minimize their tax burden—and in doing so, keeping only cash-basis records for tax purposes, rather than accrual-basis financial records prepared according to generally accepted accounting principles (GAAP) —it can become more difficult to demonstrate the profitability of their business," cautions Van.
Think about sustainability. You may see the fact that your business can't run without you as a testament to your skillset, but it actually detracts from the attractiveness of your company in the eyes of a potential buyer. You need to create a sustainable business that will continue to thrive after it is purchased. If the current owner seems too vital to the business, a potential buyer may be less apt to buy it. Findlay Schenck notes the importance of "transferable contracts, leases, systems, and processes, indicating that the business is likely to succeed even after the departure of its current leader."
Define your competitive advantage. Establishing uniqueness in the marketplace is simply good practice, regardless of whether or not you plan to sell. Assets such as patents, proprietary products, license agreements, and supply chain relationships help you stand out from your competitors and make your business more attractive to potential buyers.
Plan ahead. If you do intend to sell your business, discuss it with your accountant and banker so you can all take steps to plan accordingly, such as structuring your balance sheet in a way that makes it easier to transfer the business to a third party. Research what similar businesses have sold for, and try to understand the specific metrics that will influence your business's valuation.
Additionally, think about the actual transition. What role would you like to play, or be willing to play, during the transition to the new owner? What will you do after the sale is complete, and how will you handle your newfound liquidity? "Don't neglect post-sale considerations like tax implications, wealth management, and estate planning," Van emphasizes.
