Business Ready For Sale


Criteria 4. 
Preparing The Business Ready For Sale



By Josh Foo,
Founder

1 November 2016

The fourth (4th) criteria for a fast sale is to present and prepare a business ready for sale.

Many SME (small-medium enterprise) firms and business have little idea on how to prepare their business ready for sale.  

If you don't ready the business properly, you won't be able to exit or sell the business quickly.  To present, prepare and ready your business for sale is one of the most important tasks you'd need to undertake to maximise your chances of an exit on your own terms.

In my experience, only a handful of SME businesses are properly readied for sale where the business owner actually executes what needs to be done to attract buyers and sell at the best price the market can offer.

As a broker agent and expert consultant, I often hear laments that the sale is very urgent. But on the other hand, these business owners make little or no effort to get their business ready for sale.

This is the very first pillar of my Three (3) Pillars To Exit formula - creating a business that buyers want.

Here are my top 4 steps to get your business ready for sale (for all 8 steps, see the link at the end of the post)

1. Financials



I get frustrated when business owners do not have or get their financial documents ready for the prospective buyer.    

Prospective buyers do not have x-ray vision into the business and getting access to the financials are an important part of due diligence process.

If you have a smaller business, then you should make the net profit look as attractive as possible.  Most buyers shopping for smaller businesses are predominantly interested in cash flow and net profit.  They want to buy a job, a source of cash flow, and not future potential or assets on the balance sheet.  Net profit or net earnings is therefore critical. 

If your business is for sale, then do not engage in activities that can impede short term profitability (e.g. by allowing your turnover to fall or to incur huge extraordinary expenses that can ruin your short-term profits).  

Hire a good accountant to make your Profit & Loss Statements, Business Activity Statements (BAS) and Balance Sheets look as good as possible.   

Get your financials ready to sell your businessTo sell your business, you'd need to get your financials ready. Photo: Pixabay.com

2.  Aesthetics



How would you put a business for sale on the market when it looks unpleasing to the eye?  The answer would be 'with difficulty'.  

First impression counts, always have and always will.  

If your business is bricks and mortar in anyway, then getting the outward, aesthetics correct is critical or else it is not a business ready for sale.  

Take a restaurant for example.  It doesn't matter if your Profit & Loss Statement and financials show a very healthy profit but if the kitchen is dirty and infested with roaches, buyers will be repelled immediately.  Even if they are not, this could put downward pressure on the price because poor aesthetics is usually a risk - the risk of having invest more money to improve aesthetic to keep the business as an on-going concern.

I have inspected businesses for sale that needed a serious clean and touch up. Rusted hinges, unswept floors, messy office, unkempt and foul garbage, broken furnishings and poor hygiene on premise require your immediate attention. 

A fresh job of new paint, new flooring and a spring clean can make the business ready  for sale and look aesthetically attractive.  Think of your business like your house for sale.  To fetch the highest price, you got to make the premise look good. 

Good aesthetics also give an impression to buyers on the way you operate your business.  E.g. a clean restaurant is usually a successful one.    

When selling your business, first impression counts.When selling your business, first impression counts. Photo: Pixabay.com

3.  Prepare an Information Memorandum



What do big businesses do when they want investors to buy into their business by way of an Initial Public Offering (IPO) on the Australian Stock Exchange (ASX)?

They prepare a Prospectus!

A prospectus is merely an informational vis-a-vis promotional document that attempts to convince prospects to invest in the business.  Smaller businesses can prepare a similar document known as an Information Memorandum for prospective buyers.   It can also be known as a Business Summary, Business Overview or via similar names but they all mean the same thing.

Creating an Information Memorandum for your own business requires some work but it is not difficult.  For SME firms and businesses, there is nobody more familiar than the business than the owner, so don't delegate the job if you can help it. 

Below is a check-list for your Information Memorandum:


A Information Memorandum 
For The Sale Of Business
(Approx 20-80 pages)

  • An introduction to the business
  • A brief history and explanation of your business (e.g. type of services/products offered, reason for the sale, etc)
  • An overview of the business' customer base and clients
  • S.W.O.T. (Strength, Weaknesses, Opportunities and Threats) analysis for the business, and suggestions to mitigate the weaknesses and threats.
  • Past Financials such as the Profit & Loss Statements, Balance Sheets, Business Activity Statements (BAS), etc. 
  • Business plan and future outlook
  • Lease details and landlord overview.
  • Franchise reports and related information (where applicable)
  • A list and description of the equipment included in the sale
  • Employee and staff operations overview, including the Owner's role.
  • Buyers' Frequently Asked Questions (FAQ) page.  
  • Identify the common objections and concerns from prospective buyers and have ready answers in the Memorandum to reassure them.
  • Testimonials and references from Customers, Suppliers and Franchisor (where feasible)
  • The sales process - instructions for the buyer on what to do next
  • Professional photos especially for retail, F&B and others B2C businesses. 


The above is only a guide, as every business is different.   You can include almost anything in the Information Memorandum that helps to persuade your prospective buyers.

Give a copy of the Information Memorandum to your business broker and prospective buyers.   This document should put your business in the best light possible and maximises the probability of a sale.   

Remember however that the Information Memorandum is a double-edge sword - if it is not properly done, or the content is bad, then it will actually repels buyers and makes your job of selling nearly impossible.   Professional photos and persuasive copywriting are a must. 

If creating an Information Memorandum is not your area of strength, or tyou can't commit to the time necessary to do a proper job, then hire an expert consultant that can.  Most business agencies or consultants will charge typically $2-6K to help you write-up and create the document.    For this small investment, your path to exit is much easier.


Assemble a team who can help you to sell your business successfullyAssemble a team of advisors to help sell your business successfully. Photo: Pixabay.com

4. Assemble Your Advisors



In the 
current market conditions (in fact in any market), you can't afford to make mistakes because you may only have one chance to sell your business.

You will need to assemble a competent team together to put your business for sale properly: Business Brokers, Management Consultants, Bankers/Finance Brokers, Accountants, Lawyers, Copywriters, Marketing Consultants and any other expert professionals you see fit to get your business sold.

Choosing the wrong lawyer or anyone incompetent in your team could be your weakest link.  A wrong valuation from your accountant could keep your business unsold for years.  A bad lawyer could frustrate or dissuade a buyer unnecessarily.  

Your team should recognise the price distortions in the market and position your business uniquely to differentiate yourself from the competitors so as to fetch you the highest price possible.

For all the steps to create a business ready for sale, see
8 Steps To Prepare Your Business For Sale 

Read Next ->    Criteria 5 To Fast Exit:  Business Sale Price 


Last updated: 20 December 2018



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