Practical Tips for Selling a Small Business
If selling your business is part of your long-term vision, give yourself plenty of time to plan. You're going to need a long runway in order to prepare yourself and your business for a lot of work and a major transition. These three steps will help you start determining what the potential value of your business could be and what you need to do to optimize before moving forward with a sale.
Perform a SWOT analysis.
Before you can lay the actual groundwork for a sale, answer some questions about these four key aspects of your business:
Strengths What sets your business apart? How loyal is your customer base? Do your revenue projections show a path for continued growth beyond the sale? Do your customers and staff report high levels of satisfaction? Does your business have high brand awareness and a positive relationship with your community?
Weaknesses Do you have the best team members in every seat? Do you have good balance between your staff and customer demand? How long are your wait times? Is your tech stack up to date? Are your facilities modern, comfortable, and attractive to new customers or clients?
Opportunities Is there an underserved group of customers or clients in your community you could target with a new marketing campaign? Who are some potential buyers? How could you upgrade your staff, tech, or facilities?
Threats Who is your biggest competitor? Is your cash flow cycle as efficient as it could be? Does the business have any outstanding debts or pending legal matters? Are you struggling to fill key positions with top talent? Have you suffered from high employee turnover or low customer & client retention?
Improve profitability.
The less questions that a prospective buyer has about your business's cash flow, the better. Tighten up your operating expenses by minimizing discretionary spending (travel, entertainment, meals) and eliminating any excess costs, such as un-needed subscriptions. Work with your billing and tech departments to make sure you're getting paid as quickly and efficiently as possible. If, as the owner, your compensation draws haven't been consistent, standardize those payments.
One of the toughest expenses to gauge ahead of a sale is your staff. A truly outstanding employee adds considerable value to any business. But if you're starting a multiyear process of leveling costs, that top performer might have reached their salary ceiling with you. Being transparent with your team about your goals and the opportunities available to them will help everyone reach the best professional decisions.
Plan for selling the real estate and other assets.
Many business owners assign ownership of real estate to a holding company or other entity from which their operating business rents office space. You might have similar arrangements for some of your more expensive equipment. Unless you plan on renting these assets to the buyer of your business, you have to determine the best way to sell them. In some cases, your eventual buyer might need to negotiate a second sale with the company that owns your hard assets. Or, in the build-up to your sale, it might be best to form a new company that owns both your business and your assets.
Finalizing the best sales strategy is going to require a complex analysis of your business’s value, the current market, your potential tax liability, and your personal goals going forward. Let's start working on a plan for a successful sale that will maximize both the ROI of your business and your Return on Life.