6 Key Things You Need To Sell Your Business

It is often said that everything is for sale for the right price.  Even if you are not in the market to sell your business, there are 6 key things you need to have in place at all times.   They are required to manage your business effectively and also there to take advantage of a potential buyer.  What are they?

Unless you are actively soliciting to sell your business, you never know when that perfect buyer may come along.  My Dad had a very good Funeral Business with two locations in the Toronto area that everyone knew and respected.  At the fairly young age of 56, he had no intention of selling his business until a new group came along and offered him a deal he could not refuse.  It was the best thing that could have ever happened, because he enjoyed 15 years of comfortable retirement after he sold the business.

The rule of thumb is your business should be operating as if you were going to sell it tomorrow.  It may not happen for years to come, but you need these 6 key things in place at all times.

  1. Dealer Agreements:  Most dealers in the Marine and Motorsport industry will have a written agreement with their key manufacturer/suppliers.  Some are more comprehensive than others, but it is imperative you know the terms and conditions that you must operate your business under.  You want to know if the agreement is transferable and under what conditions.  Are there any penalties and can you return product? How long will a transfer take?  The most important question I can ask is – when was the last time you read your dealer agreements?
  2. Financial Evaluation:  It stands to reason that to sell your business you need to evaluate its worth.  This is also true in the case of an ongoing business.  In my opinion it is not enough to just hand your financial statements to a potential buyer or your creditors.  You should be able to provide a financial performance analysis that outlines the last 5 years sales trends, ratios, percentages and margin analysis.  Obviously in the case of a business that is for sale, you want to show growth over the period with a reasonable profit each year that is retained in the equity of the company. 
  3. Property Assessment:  If the company owns land and buildings it is advantageous to have a reasonably current property assessment on hand.  This is valuable for securing credit with your bank or finance company for your operations.  It is also imperative to provide this to a potential buyer since your financial statements will only show the depreciated value of these assets.  Your financials will show the purchase value of the land and the buildings will have a depreciated value for accounting purposes.  In reality these assets will have, more than likely, increased in value over time.  However, the appreciated amount will not show in the equity of the company.
  4. Inventory Management:  One of the first things a buyer will scrutinize is your inventory.  They will want to know how many times it turns in relation to industry standards and the aging of your units.  Inventory is something we need to be diligent with at all times because it can affect a number of aspects of your business such as interest expense, margins and credit lines.
  5. Business Plan:  If you want to impress a potential buyer, not to exclude your creditors, have a comprehensive business plan on hand.  Not only is it your road map to effectively operating your business, but provides a window into the business operations for a prospective buyer.  We can benefit from having an insight into the potential of a business operation and what it will take to achieve the profit goals.   
  6. Goodwill:  Most dealer financial statements do not include Goodwill on the balance sheet, because it is an intangible asset with no physical value.  However, there is value attached to the length of time you have been in business, the clientele you have established in your market place and reputation you have built within the community.  There is no magic formula for calculating Goodwill so, simply put, it boils down to what you can negotiate with your buyer.

Whether you are managing your business, thinking about succession planning or actively looking to sell your business, you should keep these 6 key things at the forefront of your business operations.  They are essential for maximizing your profit, working with your creditors and negotiating with a potential buyer. 

If you need help or guidance with any of these business practises, contact me for a free consultation.

 

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