Presale planning is one of the most important parts of selling a business. By taking the time to evaluate the company’s finances, legal documents, and organizational risks, you can increase the value of your business in a few easy steps.
Presale planning ultimately increases the price you want to achieve, saves time and cost when the sale process commences, and avoids the risk of an aborted sale. These changes will also help with an easier transition and due diligence procedure during an acquisition.
In this article, we’ll discuss a few ways to strategically increase the value of your business using the best presale strategy.
Develop a plan of action
A fast sale can diminish your company’s perceived value. You shouldn’t overmarket yourself. Not everyone can or wants to purchase your company. A targeted, well-planned strategy will produce better outcomes than a scattershot sales approach.
Here are a few tips on presale planning of your business:
Identify your company’s fair market worth
Finding a fair market value is one of the initial steps in selling your business. Ensure your asking price falls within the range that a bank, prospective buyer, or company appraiser can substantiate.
To determine your company’s market worth, add the tangible and intangible assets of the business. Then subtract any obligations, liabilities, or business debt.
Put together a team of experts
To ensure the transactions proceed as smoothly as possible, you need legal, tax, and commercial counsel. The experts on your team can ensure that the presale planning includes the best options and alternatives. You should at least have a business broker, a transactional lawyer, and a certified public accountant (CPA) or tax attorney.
Consider the proper deal structure for you
Getting the business valuation range right is one thing, but your responsibility doesn’t end there. You must understand how to organize the agreement correctly. This is where business brokers and transactional lawyers can be of use.
Based on current market conditions and how previous deals in your industry are being handled, the business broker can assist you in choosing the best structure. Attorneys can help create documentation to ensure your protection based on the deal structure.
Organize your finances
One of the biggest mistakes business owners make is not keeping a complete record of their finances. Make sure your financial reports are well-organized and clear. They should include revenue, cost of goods, payroll hours, operating expenses (both fixed and variable), and consistent net profits over three to five years. Show as much profit as possible because the company’s free cash flow will largely determine your valuation.
Prepare your due diligence records
You must give a buyer a list of due diligence documents as soon as you accept their offer. That said, your CPA or business broker can assist in giving you a list of these standard due diligence documents. This means that you can start organizing these documents and be ready before taking your business to the market. The buyer and their counsel will request the specific records they expect to see for due diligence.
Separate your personal and business spending
Mixing personal and corporate costs is one method to diminish your company’s value. Many small business owners treat their company like a personal ATM to reduce their taxable income.
Combining the two raises several issues, including legal issues, business valuation issues, and a whole host of problems with due diligence. This could affect the debt service ratio calculations when a buyer tries to acquire financing.
By keeping your personal and business money separate, you can make sure that you treat your company like the independent entity it is while preserving your own financial security.
Analyze your market and start marketing for a buyer
Selling a business is not the same as selling a house. You don’t advertise it on social media or share the information with your friends, family, or coworkers in the hopes that someone will buy it. Throughout the entire process of selling your firm, you should maintain confidentiality. Here are a few ways in which to best market your company:
- Organize how often and how much information gets shared.
- Draw in serious, quality buyers while avoiding time wasters.
- Make sure buyers are aware of the sales procedure and critical terms.
- Discuss how potential buyers will see the chance to purchase your company.
Obtain a proper offer in writing
A good offer consists of much more than just a letter of intent. You’ll need both a stock purchase agreement and an asset purchase agreement. A typical purchase agreement will specify the acquisition price, terms, due diligence period, papers, and closing date.
Use your legal experts to prepare or evaluate all the necessary legal paperwork.
Keep things private until after the sale
Prior to finalizing the deal, keep things under wraps. When a new buyer enters the market, many employees feel uneasy and afraid that they will lose their jobs or positions. If you disclose the sale too soon, you risk losing several essential staff before it closes. A large flight of employees may cause a buyer to pause and may even prevent the sale from going through.
Entrust the closing to an escrow or closing attorney
If you follow the second step (put together a team of experts), there won’t be a problem. Rely on legal professionals to draft and manage the escrow closing and ownership transfer. Leave reps and warranties, including succession responsibilities, to the experts. Using a lawyer could save time, energy, and money. They help with disputes with new owners, suppliers, or even old employees and may help you find the best deal.
Establish a timeline for presale preparations
Selling a business starts once you’ve determined the viability of various exit strategies. A management buyout, share sale, or merger are a few possible approaches.
As the business goes through a phase of aggressive restructuring to maximize sale value, preparation during this stage is considerable. To develop a smooth operational structure, find and eliminate inefficiencies by fine-tuning how the business functions.
Here are the three main steps when establishing a time line for your presale preparations:
- Business simplification: Streamline organizational structures, day-to-day operations, and business procedures to cut costs and boost output.
- Debt advice: Enlist early assistance from a debt advisory professional to put into practice a debt reduction strategy along with your business’s financial goals. Utilize a strategic finance technique for the company to boost growth value before the anticipated sale.
- Strategic investment: Implement a strategic investment plan to increase revenue, draw in clients, and strengthen financial projections.
Presale planning includes short-term and long-term goals to enhance the company’s reputation. This may improve your chances of receiving attractive offers from qualified parties with the appropriate experience, skill set, and industry expertise.
Create a detailed list of assetsÂ
Making a thorough list of all the assets and liabilities for sale is a good exercise if you’re selling the business and not individual shares. Movable assets, surrendered contracts, a portion of the debtors’ book, intellectual property (trademarks, licenses, and the like), current stock, and goodwill are all examples of assets.
Ensure all staff has a contract of employment in place and a job description (these are discussed during due diligence when selling). Be sure to understand the valuations of your tangible assets, such as your real estate, machinery, and equipment.
Consult a fixed asset register when discussing valuations with a buyer. Patents and intellectual property rights are additional assets that will increase in value in the event of a sale. All of these have value in the market, including trademarks, service marks, trade secrets, and sensitive information. By taking the required precautions to safeguard your intellectual property, including your company name and the slogan you have been using for ten years, you may give an otherwise intangible asset a monetary worth.
Clean up accounting recordsÂ
Having your files in order and easy to understand will save time and costs during the transaction phase. A plan of action demonstrates to potential buyers how the business runs, both economically and legally. This could increase the value of the business and the price you’re looking to get for it.
If you’re aware of areas in your business that need tidying up, consider conducting a high-level audit. Audits cover several areas that need careful handling for review. These include:
- Records of the company’s accounting records and financial statements
- Ownership and structure of shareholders
- Change of control in critical commercial contracts
- License and ownership of the businesses’ intellectual property
- Information on bank accounts and security
- Current employee contracts and list of employee benefits, pension, and property
- Historical or ongoing litigation and tax obligations
Prospective buyers find all financial information to be important when buying a business. Having your information up to date and well presented provides confidence to a buyer and minimizes the risk of sale reductions once the sale process has started.
Prepare a business profile
Compelling business profiles capture buyers’ interest and encourage them to learn more about your organization. Profiles that stand out have a variety of styles, as well as some typical characteristics. You can write a successful business profile in several ways.
- Keep your explanations short and impactful.
- Make sure the profile’s tone corresponds to your business.
- Update your profile every month to keep it accurate.
- Use a logical layout that makes the profile simple to understand.
Conclusion
In today’s business world, where quality acquisition targets are plentiful, set yourself apart by ensuring your business is worth buying. By following the steps of our presale planning process, you can quickly meet your business value objectives. Careful legal planning and comprehensive seller-side due diligence could be the difference between a regular sale and a comfortable early retirement.