5 Important Steps Before Selling Your Business

Step One – Decide To Sell

Just like the title says, there are Important Steps Before Selling a Business. The very first step is making the firm decision to sell. This may sound like a no-brainer but a lot of business owners are interested in selling their company… At some point in the future, but they don’t know when. They may even think they are ready but because of the emotional ties to the business, they do not make a firm decision to sell. As a business owner, you should have specific benchmarks that give you a finish line to cross where you know that this is the right time.

Step Two – Choose The Right Business Broker

When looking at important Steps before selling a business, choosing the right business broker is one of the most important steps. There are a lot of business brokers to choose from but unfortunately, there is not a lot that will truly put in a full-time effort to sell your business. There are a lot of residential real estate agents that try to sell companies, but they use techniques and selling methods typically used to sell residential real estate, not businesses. If you want to sell your house, you want the world to know! You put a sign up in your yard. Typically, someone takes pictures of your house and every little detail about your home goes all over the internet.

When you sell your company, you only want potential buyers knowing about the sale, and only after you get a non-disclosure agreement signed. I always tell my sellers, there are three groups of people you don’t want to let know you are selling your business, your customers, your competition, and your employees. You wouldn’t go to the best podiatrist in the world for brain surgery, you don’t go to a residential real estate agent to sell your business.

You want a business broker that either has knowledge of your business and industry or will take the time to learn about your business and industry. Every business is different and there are unique characteristics that a business broker needs to learn. The Enterprise Group is a business brokerage firm that sells companies. We dedicate 100% of our time working with business owners and we are not involved in the residential market. We educate our sellers with what they should do to prepare their business before going to market. The Enterprise Group consults with our clients while the business is listed for sale helping them prepare for due diligence. Working with The Enterprise Group would be a great choice to sell your business.

Step Three – The Business Valuation

Even if you know the value of your business, its best to get an independent third party appraisal. Important Steps Before Selling A Business most definitely includes a business valuation. The Enterprise Group can prepare a business valuation for you. This is referred to as a “Broker Opinion Of Value”. That being said, we always encourage sellers to make the investment and have an appraisal completed by a company certified to place a value on a business.

Lending institutions recognize companies qualified to place a specific value on the subject business. This does several things, one, it puts you in a great position at the negotiating table with a potential buyer. Two, it puts you in a much stronger position when a buyer is trying to obtain a loan because the bank can see that the sale price is based on a certified appraisal. Three, even though most banks will still require another third party appraisal for the loan, it makes it very difficult for another certified appraiser to put a lower number on your business and if they do, you have ammunition to go back to have it reevaluated. And four, statistically it over doubles your chances of successfully selling your business. In the end, it is a small investment that can pay off big. It also more than doubles your chances for a successful sale.

Lending institutions recognize companies qualified to place a specific value on the subject business. This does several things, one, it puts you in a great position at the negotiating table with a potential buyer. Two, it puts you in a much stronger position when a buyer is trying to obtain a loan because the bank can see that the sale price is based on a certified appraisal. Three, even though most banks will still require another third party appraisal for the loan, it makes it very difficult for another certified appraiser to put a lower number on your business and if they do, you have ammunition to go back to have it reevaluated. And four, statistically it over doubles your chances of successfully selling your business. In the end, it is a small investment that can pay off big. It also more than doubles your chances for a successful sale.

That being said, we encourage sellers to invest in an appraisal completed by a company certified to value businesses.  This does several things, one, it puts you in a great position at the negotiating table with a potential buyer. Two, it puts you in a much stronger position when a buyer is trying to obtain a loan. The bank can see that the sale price is based on a certified appraisal. Three, even though most banks will still require another third party appraisal for the loan, it makes it very difficult for another certified appraiser to put a lower number on your business. If they do, you have ammunition to go back to have it reevaluated. And four, statistically it over doubles your chances of successfully selling your business. In the end, it is a small investment that can pay off big. It also more than doubles your chances for a successful sale.

Step Four – get and keep your business in “Show Shape”

It is amazing how over time a business can get very cluttered, disorganized, and downright unappealing. If you own your real estate, a good coat of paint can make a world of difference, both inside and out. Just like your home, over time, your business can get very cluttered with “stuff”. Identify old, obsolete inventory. Things brought in with the thought, “someday we just might use this,” but someday never comes. You may find you and your employees work better and feel much more productive working in a fresh, clean, organized work space.

I know that you may think this would telegraph to your employees that you are up to something. If you start by telling them you have realized you are not allowing the business to live up to its full potential and you, unfortunately, have allowed the business to get run down. Because of this, you have decided to spruce up the place. Tell them you want to give them a better workplace. Put a game plan in place to get them involved in making it happen. You just might find it was something you should have done a long time ago.

Step Five – HR and Due Diligence

There are three very important documents you want to have, job descriptions, training manuals, and an employee handbook.

A job description is a valuable tool for many reasons, one, it defines what each employee does within the company. If you already have job descriptions, it is a good idea to review them. See how accurately they portray what each employee does for the company. If you do not have job descriptions, drafting them can also be eye-opening as well. You may find out that you have employees who have developed far past why they were originally hired. You also want to have a defined set of parameters as to what function each employee performs. Serious buyers will want an understanding of each job position. An accurate job description will allow that buyer to know the function of every employee.

Training Manuals are important tools. Your company should have current, up to date training manuals for each employee. Training manuals allow other employees to step in and effectively cover a co-worker’s job. Any type of absence can impact the company whether they go on vacation, get sick, quit, or even die. This can dramatically cut down on the time it takes to get a new employee up to speed. A training manual is best drafted by the employee who actually fills the position. Once finished, it should be reviewed and drafted into a comprehensive document. Detail is important when drafting a training manual. Put the training manual together in step by step procedures. Systems are much easier to learn than trying to learn the job in its entirety.

Training manuals are extremely valuable to a buyer coming in. It allows them to get a handle on the inner working of the business. It also makes it significantly easier to replace an employee should that person leave.

The Employee Handbook defines the company policies and procedures. It shows Sick time, vacations, benefits, 401k, expectations. It also shows everything else that pertains to working for your company and how it relates to your employees. Every employee should receive a copy and the employee handbook should be reviewed at least once a year for changes.

Due Diligence is the final step I will talk about today. The Enterprise Group tries to help every business owner we work with to start preparing for the due diligence process from the very start of the listing. When a business owner hires us to prepare them to list and sell their business. We start them gathering needed documents and information for due diligence. There are basic things needed for the valuation, but during due diligence, a buyer typically wants more detail. Due Diligence is the process of a buyer coming in and inspecting every facet of the business. This gives them the opportunity to verify and inspect what they are purchasing. At this time, they will verify all of the financials, inventory, and customer base. It allows them to see everything included, or not included in the sale. Every buyer will have slightly different requirements for due diligence. We can anticipate most of what a buyer will expect. Gathering documents and information early, we can help dramatically cut down on the stress normally associated with due diligence.