Preparing to Sell Your Business? Read & Save This Checklist
According to Harvard Business Review, the failure rate for mergers and acquisitions is 70%-90%. Poor planning across all M&A stages remains one of the leading causes of these abysmal results.
Before you start preparing to sell your business, you'll want to be among the 10%-30% of owners who successfully close a deal.
But how do you prepare yourself and the business for an upcoming transaction? Is it even the right time to sell? Read on to learn more, including strategies for overcoming common challenges during the preparation stage.
TL;DR - Preparing Business for Sale Checklist
Here's a quick checklist of the various aspects to fulfill when preparing a business for sale, which we'll discuss further in one of the next sections:
Determine the reasons and right time to sell
Hire business sale experts
Get a business assessment and valuation
Conduct financial preparation
Legal considerations
Optimize your business operations
Conduct reverse due diligence
Improve the value of the business
Prepare marketing and other M&A documents
Find and qualify buyers
Negotiate favorable terms
Fulfilling all these considerations on your own can be overwhelming. The business sale experts you hire can help you complete every task efficiently.
Our services at Exitwise include helping you find the best experts to help you optimize your exit strategy. We'll connect you with top M&A attorneys, investment bankers, wealth advisors, and financial accountants.
Besides showing you how to prepare your business for sale, these experts can help you sell it under the most favorable terms, including your dream sale price.
Consult with us at Exitwise to find the best M&A experts to optimize your business exit.
When Is It Time to Get Your Business Ready for Sale?
There's no rule of thumb regarding the best time to start preparing to sell a business. Here are some pointers to help you decide:
Business experts recommend starting to prepare your business for sale as soon as you start it. The idea is to establish a robust exit strategy right from the start, which can include a proposed exit time and when you should start preparing the business for sale.
However, if you don't put up an exit plan that early, you can always do it now.
Ideally and practically, you can start active preparations two to three years before you put the business on the market.
Allowing enough time helps you implement changes that can significantly increase your business valuation.
In some cases, you don't have the luxury of starting preparations earlier. Some situations can force you to start preparing to sell immediately, such as:
Your business exceeds your resources, experience, and expertise
Receiving a tempting unsolicited buy offer for your business
Developing incurable boredom or burnout
Reaching a plateau and stagnating
Advantages of Preparing to Sell Your Business
Preparing a small business for sale in good time offers several benefits for all the parties involved. Let's see some advantages you can enjoy as the seller:
Navigating the transition and integration more easily.
Attracting more potential buyers once you've increased the value.
Getting into the proper mindset, which makes selling and letting go of the business easier.
Maximizing business value as you discover strengths, opportunities, and weaknesses to act upon.
Streamlining the sell-side M&A process, ensuring you sell faster, efficiently, and effectively.
Minimizing M&A risks that could tank the deal since you can identify issues early and correct them.
Strategic planning as you may decide to sell later rather than immediately, allowing you more time to increase the long-term value.
Questions to Ask Before Selling Your Business
While there are tens of questions to ask when selling a business, here are the most important ones to consider:
Why am I selling?
Is my business growing?
What value is my business's value proposition?
Are my business's financials solid and accurate?
What should I do to prepare my business for sale?
How do my employees feel about the potential sale?
Are there legal, financial, or personal issues that may affect the sale?
Is the industry or general economy experiencing a boom in demand for businesses for sale?
How to Prepare a Business for Sale
Here's an in-depth look into how to prepare to sell your business:
1. Determine the Reasons and Right Time to Sell
Determining why you want to sell your business helps you get into the right mindset.
There's no expressly right or wrong reason to sell what you've created over the years. You shouldn't get too hung up on the details; instead, try a combination of several reasons.
You should also determine when to sell your business, ensuring the timing is perfect for selling effectively and maximizing your profit.
2. Hire Business Sale Experts
Try to get business sale experts on board from the get-go.
With the right experts, you no longer have to struggle through the activities. They can help you with them, even completing them on your behalf so you can concentrate on your business's pre-sale health.
3. Get a Business Assessment and Valuation
You'll need a team of M&A experts, including business appraisers, to thoroughly assess your business and produce an objective business valuation report.
You can assess your business yourself because you know it much better than the experts, but you may not be impartial. Potential buyers may easily see through your impartiality, which could kill the deal.
4. Conduct Financial Preparation
You can complete some of the activities in this step. For example, you can gather all the historical financial documents for the last 3-5 years.
Some critical financial documents include balance sheets, cash flow statements, tax records, financial projections, and income statements. You can also provide the pending accounts payable and accounts receivable.
Your M&A team examines these documents and adjusts or standardizes them where applicable.
The team can then deduce your business's financial health in terms of profits, cater to expenses, liquidity, and ability to pay debts.
5. Legal Considerations
Potential buyers like to see businesses that are legally compliant and open about any past or ongoing litigations.
Some key details to prepare for the legal aspect include contracts, agreements, licenses, permits, unresolved disputes, and compliance certifications.
6. Optimize Your Business Operations
Operational efficiency is one of the measures of a business's financial and general health.
After a thorough assessment of your business, your M&A team can show you areas for improvement to increase its value.
The aim is to eliminate all processes or procedures with little to no value, especially the ones that slow you down or cause confusion within the business.
For example, you can reduce or eliminate manual data collection, excessively complex workflows, unnecessary meetings, poor communication channels, and redundant reporting systems.
7. Conduct Reverse Due Diligence
Reverse due diligence involves examining your business from the buyer's perspective to identify potential concerns that could tank the sale or reduce your exit value.
Here are key things to consider:
Continuous Due Diligence: Instead of conducting it as a standalone activity, it's best to continuously handle reverse or sell-side due diligence throughout the preparation phase and M&A process.
Thorough Examination: You'll want to examine your financial health, legal standing, market position, tax compliance, operational efficiency, human resource policies, and environmental compliance.
Risk Mitigation: Work with your exit strategy team to correct any risks you discover that could push potential buyers away.
Proactive Transparency: Where you can't correct an issue in time, be honest about it from the start rather than waiting for the buyer to discover it on their own during buy-side due diligence.
Corrective Actions: You can also show what you've done to correct them and suggest further remedies the new owner can take.
Fostering Trust: Such honesty and transparency can foster trust and credibility, helping the deal push through despite the highlighted issues.
8. Improve the Value of the Business
Besides operational efficiency, you may have other opportunities to maximize the value of your business before the sale.
Your M&A team typically recommends improvements based on their assessment of your business's strengths, threats, opportunities, and weaknesses.
Some common ways to improve the value of your business include:
Boosting your cash flows
Reducing debt
Diversifying your customer base
Diversifying your supplier base
Enhancing your physical and online presence
Organizing and standardizing business documents
Expanding your market reach
These improvements can make your business more attractive to potential buyers, raising buyer competition and increasing your sale price.
9. Prepare Marketing and other M&A Documents
Your M&A team prepares various marketing documents and materials to convince potential buyers to buy your business.
They can prepare a redacted business profile or teaser, brochures, confidential information memorandum, advertising copy, and advertisements.
Additionally, the experts help you handle other documents throughout the sale process. They can handle indications of interest, letters of interest, M&A NDAs, term sheets, and merger or sale agreements.
10. Find and Qualify Buyers
While you can find a buyer for your business yourself, it's better to work with M&A professionals.
They can help find a buyer sooner by first marketing the business to their pool of pre-vetted and pre-qualified prospective buyers.
11. Negotiate Favorable Terms
The preparation phase continues beyond finding a buyer.
Your team of M&A experts can help you negotiate the most favorable terms and conditions for the deal, including the deal structure and the purchase price.
Once the negotiation stage is over, all you have to do is complete the deal. You'll receive your payment, transfer the business to the new owner, and help them with the transition and post-sale integration.
Overcoming Challenges When Preparing to Sell Your Business
Like the sale process, the preparation phase presents various challenges you must overcome to increase your chances of a successful exit. Here are some strategies to consider:
Research your business and industry thoroughly to learn as much as possible about business exits.
Prioritize reverse due diligence and collaborative due diligence with the buyer's side to avoid unpleasant surprises that may sink the deal.
Identify your target market and ideal buyer.
Address potential objections early.
Hire experts to show professionalism and build trust with buyers.
Get an accurate valuation to avoid underselling or overselling.
Stay adaptable to internal and external market changes to maintain your business's sellability.
Leverage technology, such as M&A software, to manage different parts or the entire preparation and sale process.
How Exitwise Can Help Prepare Your Business for Sale
At Exitwise, we connect business owners like you with top industry-specific M&A experts to help optimize the process of selling a business. Here's how this works:
We connect you with M&A attorneys, investment bankers, wealth advisors, and financial accountants to form your dream team of M&A experts.
We use a tried, tested, and proven three-step process that involves a detailed initial consultation, introducing you to various experts, and helping you interview and hire them. We also negotiate favorable fees and terms with the experts on your behalf.
We also help you manage the team to ensure the sale is as smooth as possible and that your personal and business interests are well protected.
Schedule a chat with the Exitwise team today to learn more about optimizing your business sale.
Frequently Asked Questions (FAQs)
Let's wrap up with questions business owners ask regarding ‘how to get my business ready to sell’:
What Are the Requirements You Need to Complete in Order to Be Ready to Sell?
The critical requirements to complete to be ready to sell your business include:
Business assessment and valuation report
Gathering and optimizing legal, financial, marketing, and operational documents
Market analysis to find prospective buyers or determine if there is enough demand for businesses like yours
Developing an exit strategy or improving the existing one
Improving your business's value to enhance its attractiveness
Are There Legal Document Preparations Needed for a Business Sale?
The legal document preparations required for a business sale include:
Business permits and licenses
Business formation documents, such as articles of incorporation
Documents on ongoing or pending litigations and passed judgments
Premerger filing and antitrust approvals for certain large mergers or acquisitions
Contracts and agreements with suppliers, customers, employees, and shareholders
How Do I Determine the Value of My Business Before Selling?
You can determine the value of your business yourself, but it's better to have an M&A team do it for you for optimal objectivity and accuracy. Depending on your business's situation, they can use the income, assets, or market approach.
Conclusion - Is Your Business Ready for Sale?
When preparing to sell your business, having a checklist helps you avoid the risk of skipping any essential steps necessary for maximizing your exit.
You can use our checklist to see how far you've gotten in preparations and what remains.
Even if you can do some of the activities yourself, you'll want to delegate to a team of M&A experts to streamline the preparation and sale process further.
When you work with Exitwise, we connect you with top M&A experts in your industry to help you with pre-sale preparations and the entire sale process. These experts can help you sell faster under the most favorable terms.
Reach out to us today to streamline your business exit!
