Selling your business requires two things: records and answers. Records detail where the business has been, where it’s going, and the present and future financial needs. Answers to vital questions will help you understand the right time to sell your business; and when that time comes, help a potential buyer gauge their capacity to run your business.
Whether you’re starting the sale process or looking to sell in the long term, there are three key elements to preparing for a sale: good record keeping, financial forecasting and a team.
We will take you through each of the elements necessary to sell your business.
Preparing to sell your business
Due diligence is your first step in preparing your business for sale. This is a process of anticipating the questions prospective buyers might have, gathering the information to answer those questions, and assembling the data clearly and accessibly. Wherever you are at, starting this process early is advantageous.
Good record keeping
This is sound advice for any business owner, but good record keeping is a necessity in the success of any type of business. It expedites tax preparation, manages accounts, and gauges a business’ capacity to expand or sell. Record keeping guides strategy and aids the daily operation, interests, and working costs.
Solid record keeping is an indicator of past success, present needs, and future capabilities. It can be a solid resource for understanding where your business needs improvement prior to selling, or a barometer that it’s the perfect time to sell.
When selling, you’ll need to provide all of this information to prospective buyers. So keeping a comprehensive record of your financials early will streamline this process.
The next step after collecting all of this information is making it intelligible to buyers. Standardizing your books will help buyers understand the nature of your business. These records paint a picture of your business.
When it comes time to sell, your business valuation will be partially based on your profits and projections. So in the time before selling, it’s important to forecast your business’ profits, growth, current customer base and market conditions. It will help you see what comes in and out, how that changes over time, and be a base for projections and estimation for months or years to come.
Starting this process of financial forecasting years prior to selling your business will be a visual and conceptual demonstration of your business’ profitability, success in the marketplace, and capacity to be sustained or grown. This will be integral information when a buyer does their due diligence.
Right now the world is in the midst of an unprecedented epidemiological crisis and potentially volatile market with few answers in sight. Detailing this period with budgets and financial forecasting can show what your business is capable of in financial and social upheaval. When the market and social climate stabilizes, these records will show how your business handled transition. It will provide future buyers with confidence.
These kinds of records also show greater insight into a business’ market and their place in the community. Both of which are important to longevity.
As you approach selling, as a seller, you’re required to prepare a profit and loss statement for potential buyers. Having this information will streamline the sale process and help you successfully position the business for sale.
Preparing all of that information and updating it is not easy for a business owner to manage on their own. A certified public accountant is an important investment. They’ll help organize financial records, prepare financial statements, and help you understand your business financially from start to finish.
If your accounting system is designed for you, a CPA can help standardize your bookkeeping so when selling, the information is accessible to any buyer.
When selling you’ll need to expand your team to include a business appraiser and business broker, and potentially an attorney.
An appraiser will provide you with a business valuation, an explanation of your business’ worth, to best determine a sale price. A broker will expand your buyer pool. A lawyer will ensure the legality of transactions and help compile the information to best present it to a buyer.
The information a lawyer needs will come from the aforementioned people in your team. When selling you’ll need an executive summary detailing: what the business is, how the business is conducted, the financials including a profit and loss summary, previous tax returns, income, cash flow and potential questions.
A team of financial and legal experts will make sure that all of the information necessary to sell is comprehensive, correct, and clear.
Let us help you in selling your business
Selling your business yourself is an arduous task, and can lead to mistakes that could undermine a sale. Here at Considine and Considine we can help you. From bookkeeping to financial analysis of selling we have an incredible team here to support you.
If you have any questions, schedule a consultation with us, and we will help you start planning!