All entrepreneurs who intend to sell their businesses want the best price possible. Savvy business owners prepare for this eventual transition. While preparing for a sale, they should look at their businesses from the buyer’s perspective. An objective overview will help them identify what works, doesn’t work, and needs improvement.
Preparing for an eventual sale is one thing, but keeping your business ready for a deal in the event of an emergency certainly has its benefits. Having an emergency exit plan is a good safety net for your business.
Whether you intend to sell your business now or later, it’s essential to work each day to prepare the company for that transition to new management. When you do this, you not only improve your company’s overall operation and health, but you also make it more attractive to prospective buyers. Selling your business for the desired asking price takes time, preparation, and attention to detail.
Keeping your business ready to sell at a moment’s notice saves you critical time and effort. Being prepared requires keeping the company’s financial records in order, building its customer base, and fine-tuning operations to keep it sale-ready.
Business owners who work with this ideology leave no stone unturned and tip the scales in their favor.
5 Ways to Keep Your Business Sale-Ready
1. Know Your Financial Statements
Financial statements show a clear picture of the business’s financial position and performance. They tell how the company is financed, how funds are being used, and where the funds come from.
Your business’ financial statement should include:
- The statement of cash flow shows how cash was utilized and moved in the company.
- The income statement (profit and loss) provides an overview of the business’s wealth.
- The balance sheet reports how much wealth was created–and in which form–at the end of a defined period and in which form the wealth was created.
Profit margins reveal a lot about your business’s overall financial health. This information helps determine whether products and services are priced correctly if operational costs need to be adjusted, and how your business is performing against the competition.
Each business decision requires weighing one choice against another. Financial statements contrast the cost of a product against its price, informing the owner of the expenses incurred through labor, materials, and other factors versus the price paid by customers.
Financial statements keep track and record all business expenses and income and inform potential investors about the company’s revenue, expenses, debts, and overall profitability and whether it can withstand short- and long-term financial obligations.
Having a record of each year’s financial performance helps potential buyers evaluate company performance over the years. Historical data and patterns of investments and finances influence their decisions as to whether the business acquisition promises acceptable risks and desired returns.
2. Resolve Litigation Promptly
Many businesses face litigation risk at some point. These legal issues encompass intellectual property rights, premises liability, employment-related matters, data breach, contract disputes, etc. Businesses should perform a litigation risk analysis to learn where the risk is high in their operations, then take suitable measures to curb or eliminate those risks.
Ignoring legal disputes has consequences. Unresolved conflicts worsen and take more time and money to settle. Moreover, buyers are not interested in a company actively engaged in litigation. No one wants to be involved in a mess, not of their own making.
It’s best to sort all the pending and ongoing legal disputes before selling the company.
3. Stay Abreast of the Market and Competitors
Market competition is the business rivalry between two or more companies (within a similar industry) to increase sales, acquire new customers, and retain old customers. Businesses must also adjust to ever-changing market trends, needs, and demands to stay relevant in their respective industries. The logic is simple: the more customers a business has, the greater the demand for their products and services. High demand leads to more sales and higher profits.
However, businesses rarely engage in competitor analysis, being more focused on day-to-day operation. Ignoring the competition is not a good business strategy. It’s essential to understand what your market competitors are doing. Is their client base is more robust than yours? Are their products/services better than yours?
If it is your ambition to be a leading business in the market, then you cannot ignore your competitors. You need to understand your competitors and how they differ from you. Identify areas of improvement, new opportunities, and threats, especially from the customer’s perspective.
By staying current on market trends, you strengthen your business’ position.
4. Create Room for Growth
Profitability and growth are essential to business success and market relevance. Profitability determines a company’s continued existence; development is vital to profitability.
In growth mode, a company’s primary focus is to expand its infrastructure, tap into new markets, and add more business verticals or product lines. All these activities eventually result in making the company more profitable. Companies measure growth by the increase in business turnover and market share. Both buyers and investors should weigh these factors before making a final call regarding their acquisition or investment decision.
To keep your business ready for sale, you must have a growth plan for it. A potential buyer wants to see a company that is growing, not stagnating. They want a company that has room for more and can grow.
5. Build a Strong Business
“Begin with the end in mind.” – Stephen Covey
To build a strong business, focus on growth activities. These include building long-term client relationships, employing a skilled and reliable pool of workers, and staying relevant and innovative.
If you wish to think of yourself as an innovator, you need to act as one. If you turn your ideas into a successful venture, then you’re on the right track. Your long-range thinking will also help your business survive market ups and downs and other volatile conditions.
Business owners who run their companies without a strategy for growth and independence beyond their immediate involvement put them at high risk for failure. An exit strategy is critical for building a solid business and ensuring its successful transition to new management. Creating a solid backbone for your company begins with asking yourself whether your company can survive without you. If not, then it’s past time to figure out how it can.
Sometimes an owner’s departure from the company leaves it in chaos. To avoid such a situation, outline an evident growth and exit plan to minimize business risks and ensure that your business thrives even after leaving.
Ready, Set, Go!
Preparing your business for transfer to new management can avoid a ton of scrambling should an emergency require your unscheduled exit from the company. This may not be obvious, especially when you’re just getting started. However, planning for the future—including your exit from the company—is essential to growing a profitable business.
Value Scout’s exit planning advisory team is here to help develop your value creation and exit strategies. Get in touch today!