When an owner prepares for the sale of his or her business, a number of factors should be taken into account. Aside from the primary considerations of earnings and cash flow, owners should focus on strengthening key elements within the business.
First, consider the management team. How much reliance does the business have on the owner? Can the business operate if the owner is absent? Are there key personnel in place to move the company forward with a new owner? If the owner is vital to the operation of the business, a buying group could hesitate on concerns of what may happen when the owner is no longer involved in the company.
Second, analyze where company revenues are coming from. What percentage of revenues do the top ten customers generate? Are there a few customers generating a significant amount of the revenues? A high customer concentration could be a red flag for a potential buyer. Focus on broadening the customer base and/or increasing revenues with existing customers.
Third, review financials and scrutinize expenses being run through the business. Are the expenses consistent and necessary for the operation of the business? Is the owner’s compensation consistent with the industry? Are personal expenses being run through the business? Review the financials regularly to ensure accuracy and organization. Having to justify line items and expenses can be a red flag to a buying group.
Next, evaluate forecasts and sales projections. Is the sales forecast realistic and achievable? Buyers will compare historical performance against projected financials. Be prepared to support how revenue projections were derived. Also, build and maintain an accurate reporting system for incoming projects and quotations.
Finally, organize the facility. Similar to selling a residence, the facility is a direct reflection of the owner. An organized facility projects the appearance of an organized business. If the property is owned, gather pertinent details: appraisals, property taxes, rental information and environmental reports.
These are a few elements to consider when planning for a business sale. Building a strong business foundation will provide significant benefits in ensuring a successful and effective outcome for all parties.
