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Mar 14, 2012

Can Your Business Be Sold?

Your business is your livelihood. But, there comes a time to move on. The first step is simply evaluating how ready your business is for sale. These checklists will help.

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The first issue you and anyone else considering a business exit faces is simple: Is your business a good sale prospect?

In other words, will someone pay money to acquire your business or are you better off selling its physical assets and walking away?

Too many owners assume they won’t find a buyer. Therefore they automatically default to ending their businesses through liquidation. But while liquidating allows you to recapture the value of the physical or tangible assets of your business—often at fire-sale rates—it gives you nothing for the value of your business as a going concern.

When you sell rather than liquidate your business, a buyer pays to acquire not only the physical assets of your business—the assets listed on your balance sheet but also to acquire the goodwill of your business, including the worth of such intangible assets as your business name, reputation, clientele, systems, and marketplace advantage.

The only way to harvest the value of business goodwill is through a business sale. So the decision to sell rather than to liquidate rests on a determination of whether the goodwill of your business—the value of your business beyond its physical assets—is of high enough value to attract the interest and prompt the purchase decision of a buyer.

The following steps will help you make your assessment:  

Step 1. Assess the condition of your business as a sale prospect.

The following questions help you assess factors buyers consider when evaluating the worth of your business as a going concern and a purchase prospect.

Check each factor. By answering these questions you can assess whether your business is likely to be attractive to buyers or whether it needs improvement prior to a sale offering.  

Sales and profit history

Yes  No

  

Over the past 3 years, have sales revenues consistently increased?

Have profits consistently increased?

Have costs and operating expenses increased only at a rate consistent with revenue increases?

Yes answers indicate a recent sales and profit history that positively affects attractiveness and sale readiness of your business.

No answers indicate the need for improvement prior to a sale offering. 

Financial condition

Yes  No

Do the assets of your business exceed the liabilities of your business?

Is your business able to consistently cover its costs and expenses from sales revenue?

Yes answers indicate that your business is financially solvent, which positively affects its attractiveness and sale readiness.

No answers indicate solvency challenges and a need to decrease debt and increase revenues and assets prior to a sale offering.

Products/Services

Yes  No

Does your business offer products and/or services that are distinct and superior to those of your competitors?

Does your business use a proprietary production or business process that serve as a barrier to competitors?

Is your production or service delivery process one that a new owner can easily adopt and carry on?

Are your production and operations processes detailed in an operations manual or other documentation?

Does your business have staff and management to help a new owner successfully manage the transition after the sale of your business?

Yes answers indicate that the products and services provided and the processes employed by your business positively affect its attractiveness and sale readiness.

No answers indicate a need to improve product distinction and/or production processes and systems prior to a sale offering.

Location

Yes  No

If your business relies on local or regional clientele, is it located in a market area where the number of prospective customers is increasing?

Is your business located in a region with a strong and growing employee population

If your business success is reliant on its location, is it covered by a long-term and transferable lease?

Do you foresee little or no threat of geographic or demographic changes that could threaten the long-term viability of your business location (for example, a train line coming through town, a nearby school closure, zoning changes, etc.)

Yes answers indicate that your business location positively affects its attractiveness and sale readiness.

No answers indicate a need to improve your location – through a physical move or a shift in reliance on your physical location prior to a sale offering.

Facilities/Equipment

Yes  No

Does your business have modern facilities and equipment?

If you lease your business equipment, are leases long-term and transferable?

Yes answers indicate that your business facilities and equipment positively affect its attractiveness and sale readiness.

No answers indicate a need to consider upgrades and a lease renegotiation prior to a sale offering.

Staffing

Yes  No

Other than yourself, does your business have a staff that customers or clients know and trust, that can provide continuity after your departure from your business?

Have key staff members signed employee contracts that will ensure a smooth transition to a new owner?

Are staffing policies outlined in an employment policy manual?

Yes answers indicate that your staffing situation positively affects its attractiveness and sale readiness.

No answers indicate a need strengthen staffing and staffing policies prior to a sale offering.

Clientele

Yes  No

Does your business have a long-standing and loyal clientele?

Does it have a large client roster rather than reliance on a few large clients or customers?

Have major clients signed long-term contracts with your business?

Does your business maintain a customer database that a new owner can rely upon? Do your customers rely on the offerings of your business more than on your own personal expertise and relationship?

Yes answers indicate that the clientele of your business positively affects its attractiveness and sale readiness.

No answers indicate a need to strengthen your clientele prior to a sale offering – by broadening your client base, maintaining a customer database, enhancing customer loyalty, and/or strengthening client relationships with your business rather than with you personally.

Brand/Reputation

Yes  No

  

Does your business have a name that is well known and respected in its market area and business arena?

Does your business own its name via trademark, as a domain name and on major social media channels?

Does your business have strong online presence including a strong standing in search results and favorable online reviews and ratings?

Does your business have strong and effective marketing tools?

Yes answers indicate that your business brand and reputation positively affect its attractiveness and sale readiness.

No answers indicate a need to improve your name awareness, reputation, online presence and marketing materials prior to a sale offering.

After completing the assessments in the preceding chart, move on to Step 2.

Step 2. Flag areas of your business in need of improvement prior to a sale offering

Based on your Step 1 assessment, use the following list to flag aspects of your business that need to be strengthened prior to a sale offering:

Check all areas in need of improvement

Sales and profits
Financial condition
Products/Services
Location
Facilities/Equipment
Staffing
Clientele
Brand/Reputation

Step 3. Create your pre-offering action plan and timeline

To proceed with pre-sale improvements take these steps:

•    For each area of weakness checked in Step 2, create an action plan by listing the improvements necessary to strengthen that aspect of your business. To guide your planning, refer back to Step 1. Look at each question to which you answered No and create a list of actions that will allow you to switch your answer to Yes.
•    After creating your action plan, create a timeline for how long it will take to implement the changes you’ve listed.

Step 4. Decide whether to sell now, sell later, or liquidate

After assessing the attractiveness of your business as a sale prospect (Step 1), flagging areas in need of improvement (Step 2), and creating an improvement plan and timeline (Step 3), you’re ready to decide between the following options:

•    Proceed with sale plans based on your positive assessment of the sale-readiness of your business
•    Invest the time and effort necessary to make your business more attractive to buyers, which will delay your sale offering but which should lead to stronger buyer interest and a higher sale price.
•    Offer your business for sale in its current sub-optimal condition, with awareness that you’ll likely receive lower buyer interest and a lower sale price.
•    Liquidate your assets based on your determination that the condition of your business will not appeal to buyers or command a price worth a sale effort.

In next week’s installment of “Selling Your Small Business” we’ll explore what factors are motivating your sale and how those factors affect the timing and approach for exiting a business.

This article is the first part in a series taken from BizBuySell.com’s Guide To Selling Your Small Business. The guide is a comprehensive manual to help small business owners maximize their success when the day to sell arrives. Each Wednesday, Inc.com will publish a new section of the guide, each outlining BizBuySell.com’s best practices, from the initial planning stages of a sale all the way through negotiations and post-sale transition.

 

 

 

 


Mike Handelsman is group general manager for BizBuySell.com and BizQuest.com, the Internet's largest and most heavily trafficked business-for-sale marketplaces. @BizBuySell