How to ensure a fair price when you put your business on the market

Here are six actions you can take to increase both the value of your business and the likelihood that you will
realize that value, if and when you put your business on the market.

1. Create Your Own Exit Strategy

Your exit from the business will happen by design or by default. By taking the time to plan when, or how, you might like to leave the business you increase the likelihood that your plans will come to life. For example, you might prefer to work hard in the business until the day you sell it. Or, you might like to ease out of the business slowly, allowing a new management team to gradually take over. You might even decide you want to stay in the business until the day you are physically unable to perform any longer.

Whatever your desired future plans are, be sure to let others know those plans and be sure to also put in place the mechanisms that will allow your plans to happen. Make sure you know how much money the company needs to generate – either by a sale or through a pension plan – to finance your retirement if necessary. By doing so, you’ll be prepared for the future and will have a company that can survive beyond your tenure.

2. Develop a Strategic Plan

Once you know how much money the company needs to generate to support your future, you’ll need to make sure it is in the best shape possible to achieve those financial goals. A strategic plan is a simple document that outlines how you will grow the company and meet the goals necessary to create profitability, increase your market share and develop a strong team to support these efforts. The strategic planning process adds credibility and viability to your future plans. It provides the necessary reality check: Can the business actually provide you and your family with the means you need? If not, what changes do you need to make to your exit strategy?

3. Develop Your Bench Strength

If you are considering selling your business but you are still the key rainmaker, innovator, sales person and problem-solver, you are lowering the value of your company. Smart business owners focus on developing a strong management team that can eventually replace them. This management team needs to share the vision, understand the goals and become an integral part in the growth and success of the business. In the end, the business should be able to thrive, whether or not the owner is still active in it.

4. Create “Turn-Key” Tools

Potential buyers often look for businesses that are both profitable and relatively easy to run. If they have to come into the business and make a lot of improvements, learn how to be able to run the operation through trial and error and rely heavily on institutional knowledge that is not currently documented, they will be less likely to pay the asking price. If you want to make your business look more attractive to a potential owner, make it easy for them to be successful!

5. Create and Maintain Sound Financial Data

A wise prospective buyer will engage in a serious process of due diligence. Make sure there are no surprises. Have at least three to five years of solid financial information that really tells the story of your success. Include your budgets with variance, your profit and loss and balance sheets, along with your tax returns. Show a solid trajectory of growth and be prepared to explain any anomalies. Also, be honest and transparent. If trust is broken during the process, this will be used to negotiate a lower selling price – if any negotiation happens at all.

6. Identify Your Unique Selling Proposition

What sets you apart from your competition? How can you communicate what is truly special about your business? A useful, easy-to-read prospectus will tell a prospective buyer what the vision for the company is, describe how the value in the business has been created, and how it will be maintained. It will highlight the success of previous strategic plans, the strength of the management team, the experience of the employees and the unique features of your products and services. It will clearly paint the picture for a prospective buyer of the benefits they can expect to reap as a result of investing in this business.

Remember, your exit from your business will happen by design or default – planning ahead ensures it happens by design and that you reap the rewards of a lifetime of dedication and hard work.

Lisë Stewart is founder and director of Galliard Group, a training and consulting firm specializing in family-owned and closely-held businesses. She is a nationally recognized author and speaker who draws on her 25+ years of experience to share practical advice for ensuring sustainability of family businesses.

Contact Lisë at lstewart@galliardgroup.com