Is Your Business Sale-Ready? 5 Questions to Ask Yourself
Chances are you’ve thought at least once or twice about selling your business. If things are running well, cashing out could mean money to retire on, start up a new venture, or anything else you might want.
But if you’re serious about selling, there’s another important question to ask – is your business actually ready to be sold? Making your business sale-ready is an awful lot more than just being profitable – it needs to be profitable for the buyer as well.
What does that mean to you? Well, if you’re looking to sell, there are things you can do to make your business easier – and more valuable – to sell. Here are five good things to check for.
Are You Irreplaceable in Your Business?
This is one of the first things any buyer is going to look at if they’re thinking about taking over the reins of your business – is it possible to run things with you gone?
Obviously most business owners are the central figure of their business operations, and if that business is successful and profitable, it’s probably the result of some hard work that you’re really proud of.
But if you as the owner are handling too many aspects of the business by yourself, that makes it very difficult for someone to step in and fill your shoes. And that, in turn, means it’s very difficult for a buyer to justify taking over and trying to play every position as well.
To make your business more sale-ready, identify the A-players in your business and get used to offering them progressively more responsibility, taking more of the pressure of operations off of yourself. The same goes if you’re the face of the business, putting yourself front-and-center on sales and marketing materials.
If you have a hard time even leaving your operations long enough to take a vacation, it’ll be difficult to justify leaving them to a buyer.
Are Your Processes Written and Standardized?
Do you have a “go-to” set of instructions and practices for running your business, or do you just deal with things as they come?
Using your personal judgement is a perfectly understandable strategy while you’re at the helm, but if you’re looking to hand things off, your buyer won’t be able to rely on your judgement.
That is, of course, unless you condense those judgments down into a written set of best practices that can be used by your employees, managers, and potentially your business’s future owner. This is a good idea to have even if you’re not selling your business, as having standardized policies and procedures help your business to run more efficiently in general.
But especially if you’re looking to hand off operations to a buyer, the goal is to make your business easy to step in and take over, and few things will do that better than a ready-made “how-to” manual that will guide the new management. Organization is key.
Are Your Financial Records In Order and Available?
Obviously, no buyer wants to walk into a rat’s nest of jumbled paperwork and confusing records. For starters, that’s going to be difficult to sort out, and a buyer is going to want to plug in a manager and start running, not play accounting triage. But perhaps more importantly, you need to make sure your financial records are not just orderly, but ready to be part of your sales pitch.
Realistically, your financial documents are probably not as bad as a “rat’s nest,” but it’s important that your official records are what you have to work with in this process. All the work you put in to lighten your tax burden by claiming expenses to show a smaller profit? Well, that’s great for taxes, but that also means your business shows a smaller profit. Buyers will see the records showing your business turning a small profit and act accordingly.
This brings up another important point – if you have a serious buyer, you need to be comfortable with sharing some sensitive records that you would ordinarily keep under wraps. A buyer needs a lot of information to make an educated decision on whether your business appears to be long-term profitable, and if so, how much it makes sense for them to invest in taking it over.
You wouldn’t share your tax records with a customer, but you’ll almost have to share them with a serious buyer if you’re actually ready to sell.
Do You Have A Varied Customer Base?
This is a major red flag that a lot of sellers don’t think about. You may have a strong, successful, profitable business with great financials and organization, and that all makes you a great candidate to sell.
But how much of your revenue is dependent on your top customer? How about your top five customers? The specific number may vary, but generally you don’t want any one customer to be responsible for more than 10% of your overall revenue.
From a buyer’s perspective, a transition away from the original business owner might come with a couple bumps (though hopefully not too many), and it’s too big of a risk if one or two customers hold the entire business’s profitability in its whims.
Obviously that doesn’t mean you can’t still have important customers, but if you have only a couple of major players holding all the cards, consider diversifying that customer base to make your business a more attractive sales target.
Are You Actually Ready to Sell At the Right Time?
If you’ve built your business from the ground up, it’s fair to assume you have a lot of pride in it, and that’s reflected in your desire to see it continue to thrive long after you’ve stepped away from it.
But some owners have different ideas of what “stepping away from it” actually looks like. Some assume they can continue running the business indefinitely. Others look to hand the reins down to family members (whether they want it or not). But regardless of how or when, eventually the business will change hands. Selling is a way to make sure it changes hands on your terms, at the right time, for a healthy profit.
It may not make sense on the surface to sell a business when sales are strong and everything seems poised for growth. But realistically, this is the time when your business has the greatest value to a buyer. Making one misstep in that growth strategy, or even just seeing your revenue slowly decline because of market factors outside of your control, puts you in a much more difficult position as a seller.
Making the decision to sell the results of your hard work is a deeply personal decision, and not one you should make lightly. But selling at the right time ensures that no matter what happens in the future, your hard work has paid off for you. And when you sell to a group like Tsetserra that looks to keep your business running, you can also rest easy that the legacy of your hard work lives on.
If you’d like to learn more about what Tsetserra looks for in a business, you can check that out here.