Categories :
Sponsors :
Preparing Your Business For Sale
Too many business owners don't do anything to prepare their business for sale until a few weeks or even days before putting it on the market. More sophisticated sellers plan for the sale of the business literally years in advance. Sophisticated sellers know what buyers are looking for and try to enhance their businesses by molding them to appeal to buyers. This kind of preparation doesn't take place overnight. If you don't plan in advance, it doesn't mean that your business cannot be sold. But if you do plan in advance, you will probably sell your firm more easily and for a higher price.
This section explains some of the things that you can do to increase the appeal of your company to prospective buyers.
Update Sales Materials
One of the first things that any potential buyer will do is to look for your company on the Internet. Make sure that your website is up to date and visually appealing. If you have introduced new products or services add them to the site. Find a good writer or editor to review your site for style, content, and typographical and grammatical errors. If you publish brochures or catalogs make sure that they are up to date, well written, and visually appealing. A small investment here will help you make a good impression on prospective buyers and on your existing and potential customers.
If your business does not have it's own domain name, get one. To make sure that it looks professional, your website should have a URL like http://www.mycompanyname.com and your e-mail address should be myname@mycompanyname.com. Your business cards, letterhead, and other printed materials should have your website address.
Make Your Business Appeal to Buyers
This is the most important key to a successful business sale. The previous section of this manual explains the different elements of a business that buyers are looking to buy. The more of these elements that you can add to your business, and the stronger each one is, the more saleable it will be.
The first question to ask yourself is, "What do I have to sell?" Is it a profitable turnkey business? Are there possible economies of scale to be achieved by combining with another company? Is my customer base easily transferable, and would it be attractive to another firm? Do I have proprietary technology that may be of value?
Once you have answered these questions, the next question is, "To whom would my company have value?" That is, decide who would want to buy what you have for sale. The customer base by itself would not be of value to an individual who is looking for a turnkey business. It would however, be of significant value to a competitor who can add your customer list to his own customer base while not adding your operating expenses.
In short, decide what you have to bring to market and who your market is. Once that is done, you can fine-tune your company based on the needs of your prospective buyers.
Modify Operations For Easy Transition
As noted above, all buyers want as smooth a transition as possible. Well in advance of putting your company on the market, you should adjust your company so that it needs less of your direct attention. For example:
Customers-- If there is anything you can do to lock in customers, by all means do it now. Repeat customers are worth more than transient customers, and negative option customers (those that have to actively cancel to stop being customers) are worth even more. The most valuable customers are those under contract. When writing contracts, make sure that the contract is transferable to a new owner.
Last year I helped sell a Heating, Ventilating and Air Conditioning (HVAC) Company. The company's business was about 75% installation and 25% service. Of the service portion, about half was by service contract. So about 12.5% of the firm's business was service by contract. However, that 12.5% was worth more to the buyer than was the other 87.5% of the company (equipment excluded).
The buyer reasoned (quite correctly) that the installation business was highly competitive and that most installation customers have very little loyalty. Most customers require no more than one installation of HVAC in a 20-year period. Those that do it more often, such as contractors, tend to bid the work.
Non-contract service customers have a bit more value because if they like the quality of work, they will call again when repair or maintenance is necessary. Still, this work is irregular, and there is no guarantee of loyalty. The service contract people, though, are locked in for the term of the contract. In all likelihood, most will renew their contract with the same HVAC vendor. Therefore these accounts are very valuable.
Had the owner planned better for selling his firm, he would have tried to develop more service contracts at least a year before putting the firm on the market. This would have made for an easier sale at a better price.
Another type of customer that is of great value is a customer for whom switching to another vendor is difficult or costly. If you sell a product that is customized to your client and difficult for others to maintain that customer is less likely to leave. Often bundling services with your product can make it harder for a customer to switch to another vendor. For example, we did some M&A work for a printer that developed an application that allowed a customer's employees to order printed materials, such as business cards online. The application allowed the person doing the ordering to change some things (name and phone extension for example) but not others (such as logo colors and placement). It allowed budget control at multiple levels (by department, location, etc.) and centralized billing. They had hundreds or thousands of different templates in the system for each customer. In a price competitive business they seldom lost a client and the owner told me that price was almost never a factor.
If you want more specific recommendations of things that you can do to increase the price that you receive when selling your business, we offer a fixed price package that includes a written report with specific recommendations tailored to your situation.
Previous, What Buyers Are Looking For In Making Acquisitions
Next, Preparing Your Business For Sale - page 2