Guide To Selling a Business

Develop Operating Systems

Anything that you can do to develop systems or standard operating procedures will enhance the salability of your firm. The less the operation is based in the owner's head, the better. Recall the example (see section II, Turnkey Business) about the business owner who integrated systems and stayed away from the office for long periods to test them. The new owner needs to feel confident that the business can run successfully without the previous owner. The best way to prove that is through the implementation of clear operating procedures that you can prove to be working.

You need to be wary of creating a binder of operating procedures that is not used and not updated. If the documentation can be incorporated into the procedure it has a better chance of success. For example if a checklist (physical or electronic) accompanies every batch of widgets that you produce and the worker initials each step as he does it, the procedure will always be followed.

ISO 9000

There are a number of systems for documenting business procedures and one of these may be employed here. One of the authors instituted an ISO 9001:2000 quality management system in his business about 18 months before selling his business. This system provided several advantages,

• Process Documentation: The system forced all of the critical processes to be documented.
• Employee Agreements: Some employees did not have non-compete agreements with the company. As part of the implementation we asked each employee to sign an agreement that precluded them from competing directly with the company and from any future disclosure of proprietary or confidential information about the company or its customers.
• Customer Satisfaction: Since the system required customer satisfaction surveys and a record of every customer complaint or compliment we were able to assure the buyer that the customers were happy and likely to stay after the transition.
• Audits, Internal and External: Since the system was audited both internally and externally the employees made sure to use the correct procedures every time and keep them up to date.
• Focus on Business Metrics: As part of the system we measured business metrics, such as the percentage of time that was billable to a client. The employees’ performance improved as they became aware of how they were performing and this led to an improved operating margin.
• Increased Quality: The system increased the quality of the product (software) and services in quantifiable ways.
• Marketing advantage: Implementing the system allowed us to better market our company and its services to new customers allowing us to maintain growth before the sale.

Talk To Employees

Conventional wisdom is that an owner should not tell his employees that the business is for sale. However, if a workable transition depends on cooperation from some or all of your employees, you had better prepare them for the transition. A buyer who needs the employees will want assurances that they will stay. You might want to consider contracts or incentives to garner the employees' consent to stay with the company.

Also, it is a good idea to get key employees to agree (in writing) not to compete with your company if they leave. Offering a special incentive for a non-compete agreement may be worthwhile. Talk to your lawyer about employee non-compete agreements. They are legally tricky and must be drawn properly or the court will throw them out.

Incidentally, an employee(s) may be your best prospective buyer. Employees are familiar with the operation of the business, know the customers, the suppliers, etc. Employee take-overs tend to be among the smoothest. In some instances, there are tax advantages to employees buying into the company. Talk to an accountant familiar with ESOPs-- Employee Stock Ownership Plans if you are interested in this possibility.

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