Investors want to buy a company that’s well positioned for future growth. Here are some strategies for making a business more attractive to potential buyers when selling a business.
1. Obtain a professional valuation
Many business owners overestimate how much their business is worth. A professional valuation can provide objective market evidence of what similar businesses have sold for and key value drivers.
Knowing the company’s strengths and weaknesses can help maximize the price when it’s time to sell. But preparing the company for sale often takes years, so work with a valuation pro early on.
2. Relinquish control to employees
A common turnoff to potential buyers is dependence on key people. All too often the owner has held tight reins on the company’s strategic direction and day-to-day operations, acting as CEO, plant manager, product development head and lead salesman.
When it’s time to sell, the business needs a solid management team that’s capable of replacing the owner and all the roles he or she plays. Hiring qualified people and learning to trust them doesn’t happen overnight. Some people won’t have what it takes; others may leave for greener pastures after you’ve invested time and money in training. But, the payoff for assembling a competent management team can be substantial in terms of receiving a premium price and minimizing the need for the seller to provide post-deal consulting.
3. Review contracts
Most buyers want all administrative issues squared away prior to negotiating a deal. Before putting the company up for sale, review all contracts, including:
•Employment and noncompete agreements
•Equipment and facility leases
•Annual audit engagements
Agreements that are unsigned, outdated, nontransferable or expired — as well as relationships that are based on a handshake with the seller — may be seen as risk factors to potential buyers. Sometimes, the seller may find that the company has matured or market conditions have changed, putting the company in a better position to negotiate more favorable contract terms.
4. Invest in the future
A business’s ability to generate future cash flow requires continued investment in new equipment, maintenance and repairs, and updated technology. Although many business owners don’t want to make these major investments prior to selling the business, doing so can make the company more competitive, reduce costs and lower risks.
These steps are just a few of the ways owners can prepare for a sale. With the help of a valuation pro, business owners can correct weaknesses and showcase strengths, thereby maximizing their bargaining position with buyers.