The three steps in preparing your business for sale

Are you the owner of a small business? Do you realise that at some point you will need to exit your business? Have you put the steps in place to be able to do this properly, especially preparing your business for sale?

How the business is sold and what amount of money you receive from the sale depends on many factors. It is important that you are always thinking in terms of selling your business. You never know what might happen to you and if something happens and you are no longer able to operate your business you need to be ready to sell your business. Here are the three steps you can take today to make sure that if you have to exit your business quickly you can achieve the best sale.

1. Hire some great managers

One of the things that is particularly attractive to buyers is the presence of a strong management team at the company.  If the business is overly reliant on the founder you will get a much lower sale price.  As the owner/operator you want to start removing yourself from the day to day operations of the company well before you sell.

2. Increase your EBITDA

Ordinarily when a business is sold it is sold on a multiple of your EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortisation) averaged over the previous three to five years. This is the true profit of your business and is defined as earnings before interest, tax, depreciation and amortization. It is the accounting standard that determines your company’s true profit. You need to maximise this figure so that if you need to sell your business quickly then you can maximise your return. Some of the ways to increase the value is by keeping your costs down or increasing your revenue.

3. Document your process

When someone is buying your business the price that they pay will be maximised if they can walk into your business and start working in it straight away. The simplest way to think about this is to think like a franchisor. What does a new owner need to know after taking over your business? Document all of your daily processes. These are the unique value that your business has and is what a buyer will be looking for if they are going to pay you a fair price for your business.  You want to be able to provide a document that anyone can open and use to run the business as well as you do.

Putting all of these steps in place will mean that if you need to sell the business quickly then you will be able to maximise your return. It is often said that when a business owner decides to sell they are at least one to two years away from being in a position that they can achieve the maximum price. Putting these three steps in place now will help to shorten that time period for you, rewarding you for all of the effort you have put into building your business.

Jeremy Streten, Streten Masons Lawyers and author of the “The Business Legal Lifecycle”

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