Free Advice

It pays to prepare your business for sale

I recently returned from a European vacation. After a week hiking in the mountains in Eastern Europe (let me tell you, it’s nice being where there are no phones or e-mail), we concluded the trip with a 180-degree turn, a week in London.

While there, I picked up the Sunday London Times. The business section had an article titled, “Grooming your firm to attract a buyer.” A good article with wise advice. Let me share their top tips and then add a few big picture items. Combined, they’ll really help you get a better price, better terms and give the buyer a greater chance to succeed.

Here are their four tips (I’ve edited these for brevity and put my comments in parenthesis) followed by my three big-picture strategies.

1. Take at least a year to prepare it. (At least a year is right. The longer you take to prepare for sale the better. And be sure you know what it’s worth when you start preparing so you know how much you have to do.)
2. Tidy it up inside and out. Get all accounts in order with customers and suppliers. (Very true and don’t forget the financial statements. Make them clean, accurate and timely.)
3. Have a plausible explanation as to why you’re selling. (Especially if you’re not selling because of the “D’s” ¾ divorce, death or disability. Actually, for any catastrophic event.)
4. Don’t tell staff or customers until you need to. (This can be a real killer as a friend found out when he ignored this advice and his two key people gave notice within a week of him telling them he was selling.)

Show profits

Amazing how that will get a buyer in the buying mood. That’s why it may take longer than one year of preparation time. Especially if you’ve been using a lot of tax avoidance strategies. I’ve always maintained that a company with a healthy bottom line and a nice salary to the owner is easier to sell than one where you have to justify all the expenses you claim aren’t really necessary.

In the mid-nineties a client was buying a business that was for sale because the husband was deathly ill. The wife, who ran the company, took advantage of every strategy and loophole available to reduce taxes (and then some). Expenses like the personal phone bill went through the company. Although she never admitted it, I’ll bet some cash sales never made it to the register.

She acknowledged the fact that if she hadn’t done all of this maneuvering the price of the business would be $150,000 higher. She was saving, at the most, $15,000 a year in taxes. That’s a lot of years to make up the price difference.

Have systems and document them

Systems doesn’t mean process management like at GE, GM or Boeing. It means documenting what you do, what’s worked, what hasn’t, etc. It could be as simple as ‘we don’t order the customers product until the deposit is received,’ ‘we don’t start a job until all the materials are in’ or ‘we make bank deposits daily.’

How your employees interact with customers (what they do and say) can be considered a system. In fact, anything that is done repeatedly is a system and needs to be documented.

Look at marketing, operations, sales, production, administration and financial. Keep a book of how different tasks are handled and why. Make sure your employees are familiar with what you do in these areas and why.

It all starts with research. Knowing what your customers want, how to get the best deal from suppliers or scheduling employees so you’re covered during peak periods and not over-staffed during the slow times.

My daughter works at Tully’s. She told me the new manager is organizing things so that the employees don’t have to keep doing things over and over (that should really be done once).

Marketing

Okay, admit it. For many of you, the word marketing leads to a cold sweat. It’s the topic that will always fill a room and generate interest. It’s the term most used by owners to describe the potential of their business, as in, “We’re not very good at marketing so if a new owner could market the business there’s a lot of potential.”

The basics are really not that difficult. Again, it starts with research about your customers. It’s knowing the problem you solve for them, the benefits they perceive, where they come from and why they do business with you.

The problem is that too many people confuse advertising with marketing. They try something, it doesn’t work and they think that either they don’t know much about marketing or that marketing doesn’t work. A business owner in Renton with a retail customer base that is usually no more than 5 miles from his store was going to spend thousands with a major radio station. Yet most of the people hearing his ads were never going to come to his store ¾ no matter how good the offer he made.

There are a lot of things you can do to groom your business for sale. The more time you take to do so the better. The more emphasis on profits and what creates those profits the better. There will always be a good buyer, willing to pay a fair price, for a profitable company.

© Copyright John Martinka 2003. All rights reserved.