Part 2: The Business Is Ready
I have lived in my house for 30+ years and we are getting ready to sell and move closer to my daughter and her family. I have two goals:
- Sell for top dollar
- Sell quickly
So we are getting it ready by repainting it and updating a few odds and ends. Not more than we can recover but enough to meet my goals.
So it is with a business. It is a serious mistake to try and sell a business without doing some preparation first.
There are 3 value drivers that make up the value of a business:
- The quality and size of the earnings
- The quality of the staff
- The quality of the physical assets
Quality and size of earnings
By quality we mean consistency year over year of revenue and expenses. Ideally, your volume and average sale are both growing. Your cost of sales is remaining proportionate (15% to 17% of net sales for most firms). Your overhead is going up at a pace less than your average sale and your EBITDA is going up. Your as close to debt free as you can manage.
Last, but by no means least, your tax structure is such that it minimizes taxes. If you are a “C” corporation you should get your accountant to switch to a pass through entity like subchapter “S” or LLC. The rules on Subchapter “S” phase in were just reduced to 5 years. Your real estate should be owned personally or in an LLC.
In my experience if your business does not meet most of these expectations I usually recommend we delay putting it on the market until we can show at least a year of improvement. Most often we can make significant performance improvements quickly.
Quality of Staff
No matter whether you are big or small this is an important factor. If your business is solely dependent on your personal involvement on a day to day business it will have a negative impact on your business; especially in smaller communities.
Your staff should be trained, if not well trained. They should know what to do in your absence and be able to handle most contingencies without calling you. More important, your customer base should be linked to the business…not to you.
If your plan is to sell to a third party that will not personally come live in the community then you should have at least one staff member prepared to take over your role within a short time of the sale.
This is not to say that you won’t be needed afterwards but prepare yourself emotionally to decrease in importance within a reasonable period following the sale.
If you have important and key staff who might be tempted to leave if you are no longer involved you should seriously consider non competes and, possibly, implementing a “stay” bonus option to encourage them to stay long enough for an orderly transition.
The Quality of Physical Assets
Buyers prefer not to buy properties that will soon require significant capital investments. A coat of paint, even a new roof will help get the business sold.
No, you don’t have to (and please don’t) go out and buy a new fleet. But your vehicles should be well maintained.
You should also make sure that your properties are clean and look cared for. You won’t always know when a buyer is inspecting so make an effort to keep everything looking good.