Preparing Your Pre-Sale To-Do List

The minute you decide to sell your business, you have two choices. You can proceed immediately, offering it for sale in its current condition, realizing you may need to make price concessions to account for unaddressed weaknesses. Or you can delay your sale offering until you've invested the effort and funds necessary to overcome its weaknesses and improve its attractiveness to prospective buyers.

Your answer will depend entirely on your personal motivations and sales objectives. But if you have the time and want to improve the offers you receive, putting together a pre-sale to-do list is a must. Here’s how to get started:

Step 1. Flag the areas of your business in need of pre-sale improvement.

Buyers prefer small businesses that come with low risks and high rewards. The following chart lists aspects of your business that buyers will evaluate when considering it for a possible purchase. For each aspect, check whether your business condition is strong, adequate, or in need of improvement.

•    Aspects of your business that are in good condition will contribute to a stronger offering and likely a higher price.
•    Adequacies will contribute to an average-to-below-average price.
•    Areas in need of improvement will likely force you to offer price concessions unless they are offset by considerable strengths in areas of greater importance to the ongoing success of your business.

			LEGAL CONDITIONS
Good	Average	Poor	Clear ownership of assets
Good	Average	Poor	Long-term, transferable leases
Good	Average	Poor	No liens/claims/encumbrances
Good	Average	Poor	No pending litigation/labor issues/law violations
Good	Average	Poor	Up-to-date licenses
Good	Average	Poor	No zoning issue

			FINANCIAL CONDITIONS
Good	Average	Poor	Increasing revenues
Good	Average	Poor	Increasing profits
Good	Average	Poor	Positive cash flow
Good	Average	Poor	Taxes paid to date
Good	Average	Poor	Current debt payments
Good	Average	Poor	Current receivables
Good	Average	Poor	Professional produced financial statements

 

			BUSINESS IMAGE
Good	Average	Poor	Trademarked name
Good	Average	Poor	Reputable image
Good	Average	Poor	Quality advertising
Good	Average	Poor	Website/online presence
Good	Average	Poor	Business location and interior
Good	Average	Poor	Signage
Good	Average	Poor	Publicity offline and online
Good	Average	Poor	Networks/associations
Good	Average	Poor	Word of mouth

 

			BUSINESS OPERATIONS & ORGANIZATION
Good	Average	Poor	Equipment
Good	Average	Poor	Established, trained staff
Good	Average	Poor	Well-documented operations and systems
Good	Average	Poor	Profitable business model
Good	Average	Poor	Key employees with transferable employment contracts

			PRODUCTS
Good	Average	Poor	Distinct, competitive products
Good	Average	Poor	Distinct, competitive services
Good	Average	Poor	Packaging/product presentation
Good	Average	Poor	Proprietary production process

 

			CLIENTELE
Good	Average	Poor	Long-term, frequent customers
Good	Average	Poor	Long-term client contracts
Good	Average	Poor	Many vs. a customers
Good	Average	Poor	Loyal clientele

 

			TRANSFERABILITY
Good	Average	Poor	Easy-to-transfer clientele
Good	Average	Poor	Easy-to-adopt systems
Good	Average	Poor	Long-term, transferable leases

Step 2. Commit to a pre-sale improvement action plan.

Using the Step 1 chart, study each aspect of your business that you indicated needs improvement. If you also answer "yes" to the following four questions the weakness should become a target of your pre-sale improvement plan:

Yes No

Is the weakness in an area of high importance to the success of your business?

Is the weakness likely to lessen a buyer's interest or affect the price a buyer is likely to offer?

Is the cost of improving the condition likely less than the price concession the weakness is likely to force?

Can you implement necessary changes within the timeframe of your sale goal?

Step 3. Create your pre-sale improvement plan.

Create an action plan for each weakness you intend to overcome. Include:

• The necessary steps you commit to take.
• The timeline you'll follow.
• The resources you'll commit to the effort.
• How you'll assign tasks in order to complete improvements by the time you intend to launch the marketing of your business for sale.

Step 4. As you strengthen your business for presentation to buyers, keep your sale plans as quiet as possible.

Share your sale intentions with key staff and outside consultants only as necessary and only when the news is accompanied by a non-disclosure or confidentiality agreement. Even when working with your financial and legal advisors, whose professional relationships are committed to confidentiality, stress the importance of keeping your sale intentions private. Should word get out that you plan to sell your business you risk creating uncertainty among employees, customers and suppliers, which can devalue your business at the same time you most need to increase its worth.

In next week’s installment of “Selling Your Small Business” we’ll help you put together the documentation necessary for a sale.   

Editor’s Note: This article is the sixth piece 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 outlining BizBuySell.com’s best practices, from the initial planning stages of a sale all the way through negotiations and post-sale transition.