As your business grows, it’s easy to put off thinking about the day you’ll eventually step away. But with the future always uncertain, it’s essential to prepare for that eventual transition – ensuring your business is not only valuable but attractive to potential buyers.
Much like selling a house, where small improvements can raise the sale price, selling a business requires preparation – but it’s more complex. Unlike a quick property renovation, improving your business’s sale value takes time. Your business is a dynamic asset with multiple stakeholders, and superficial fixes won’t fool experienced buyers. Any glaring weaknesses will be easily spotted.
The good news is that if you’re running your business with a professional approach, you’re already building value, which will pay off when you’re ready to sell. But how can you ensure your business is structured for future saleability? Here are seven key steps.
Accurate, up-to-date financial records are crucial. Buyers need to see a clear and transparent picture of the business’s performance, and they’ll be wary of any discrepancies.
It’s common for business owners to mix personal and business finances, but this creates confusion and potential red flags. Keep your accounts clean, follow recognised accounting standards, and ensure that all adjustments, such as accruals and prepayments, are correctly reflected. A regularly updated balance sheet will help both you and potential buyers understand the true position of the business.
A buyer is investing in the future of your business, not just its present. Having a clear vision and well-defined strategy is a significant selling point.
It takes years to refine a business strategy, but by the time you’re ready to sell, you should have a solid plan in place. A one-page summary outlining your business vision, objectives, and execution strategy will provide potential buyers with confidence that your business is on the right track.
A strong management team is one of the biggest indicators that your business can thrive without you at the helm. It demonstrates continuity and reassures buyers that the business won’t collapse post-sale.
Building a leadership team is a long-term commitment. Choose individuals who not only have the right experience and skills but also align with your company culture and values. It’s equally important to give them the autonomy to lead – their success shows the business isn’t dependent on a single individual (i.e., you).
Having formal, well-structured legal agreements in place is crucial. While some buyers may overlook informal arrangements, most will see them as a lack of professionalism.
Ensure that employment contracts are up to date and that supplier agreements are legally binding and, crucially, transferable. Transferable contracts are evidence of a stable revenue stream and make the transition smoother for any new owner.
A resilient corporate structure is essential for a smooth handover. It shouldn’t rely heavily on any one individual, including key employees, who could leave at any time.
If your business would suffer significantly from the loss of a key person, you need to reduce that risk. Implement systems and processes that allow roles to be transferred with minimal disruption. A strong corporate structure signals to buyers that the business is sustainable in the long term.
Effective risk management demonstrates stability. Buyers understand that no business is without risk, but they’ll want to see how you handle potential threats like outdated stock, bad debts, or legal issues.
Develop and implement risk management strategies, and make sure you can clearly communicate them to potential buyers. Showcasing how you manage risk is just as important as showing your profits.
Ultimately, buyers want to know that your business is profitable. Consistent earnings are a major selling point, and buyers often look at cash flow to gauge this.
While some acquirers rely on balance sheets or profit and loss accounts, many look at earnings before interest, tax, depreciation, and amortisation (EBITDA) for a clearer picture of profitability. A steady EBITDA gives buyers confidence that your business is financially healthy and provides a good basis for negotiations.
Having a clear exit strategy is essential for any business owner. By focusing on these key areas, you’ll not only increase the value of your business but also make it more attractive to potential buyers. And when the time comes to sell, you’ll be in a strong position to negotiate the best possible deal, ensuring a rewarding exit and a secure future.
If you run your business professionally, you are continually building value. This will attract better offers when you put it on the market. So how do you structure your company for a future selling potential?
(originally written Sept 2019. Updated Oct 2024)
Whether you’re selling, buying, or planning for the future, Business Partnership is here to help. Contact us today to speak with your local Regional Partner and start your journey toward success.
Whether you’re selling, buying, or planning for the future, Business Partnership is here to help. Contact us today to speak with your local Regional Partner and start your journey toward success.