How to prepare your business for sale

Written by Corinna vanGerwen

Selling your business isn’t as simple as putting a sign on the lawn and waiting for a buyer to show up. Just as you would get your house ready for sale with a fresh coat of paint and minor repairs, you need to prepare your company. To get the best deal possible, you’ll have to start planning early — at least two years before your ideal sell date. Here’s what you should be doing:

Take stock

Doug Robbins, president of Hamilton-based Robbinex Inc., a business consulting firm, advises prospective sellers to evaluate every aspect of their business, from employees and facilities to product and production methods. You should note where your company excels and where it can improve, and ask yourself how you compete in the marketplace, what’s unique about your company and what future opportunities exist. Then, compile this information with your financial history and a three-year projection to create a company profile for potential buyers (Of course, consultants like Robbins are available to help you do this if it’s too much for you on your own). Robbins also points out that information gleaned from such research should be used to reveal areas where your company can improve now that will increase its sale value later.

Get paperwork in order

“Things that are documented tend to reduce risk,” explains Brian Keough of Corporate Navigators Inc, a management consulting firm in Halifax. If buyers can see what’s involved in running your business, they’ll feel more secure. So, if you haven’t already, commit your policies and procedures to paper and make sure your current ones are up to date. Renew leases and contracts if they’re integral to the value of your business, and ensure that your record-keeping is understandable to outside parties. “Present all the information in a very concise manner,” recommends Peter Beck, president of Toronto-based stock-trading firm Swift Trade Inc., a serial entrepreneur who has sold many businesses.

Talk to your accountant

Your accountant or a tax specialist can help you figure out if restructuring your company could be beneficial. For example, by transferring shares to family members, you can decrease the taxes you pay on the sale.

As well, have your accountant or a chartered business valuator recast your financials according to Generally Accepted Accounting Principles. “The true value of a business lies in the future profitability of that business,” says Robbins, so potential buyers are going to spend the most time scrutinizing your finances. You may wish to provide a marked-up version of your finances, noting where potential exists for savings, such as discretionary costs like travel and company cars. That way, future owners can see costs they may choose to forgo.

Lessen your liabilities

Legal troubles can be detrimental to a successful sale. If your firm is currently involved in a lawsuit, buyers will likely walk away from the deal. Peter Beck experienced this scenario firsthand when a frivolous lawsuit nearly cost him a sale. The lesson he imparts: “You may not be able to completely clear it up, but deal with it up front.” A signed statement from your lawyer indicating the expected outcome of the suit assures buyers that you’re not trying to hide something.

Tidy up shop

Although it may seem like a minor point, how your grounds, facilities and equipment look can influence the buyers’ perception of the health of your company. If you don’t take the time to fix peeling paint or a leak in the ceiling, how can they trust that your records are up to par? Your research should have helped you determine, for example, what equipment needs to be repaired, replaced or scrapped, what inventory should be written off, and what facilities need to be fixed. Putting on the finishing touches will make it that much easier to lure in potential buyers and get a better price.

Read other pointers on How To contribute to your business success!

© 2004 Corinna vanGerwen

Originally appeared on PROFITguide.com