At some point, you’ll likely sell your business. Whether it’s to a family member, a staffer or someone else on the open market, your business needs to be prepared when the day arrives.
So, how do you groom a business for sale? Here is a list of things to consider:
Bank all your takings. Many business owners always put a little cash in the back pocket. They think their only risk is running afoul of the IRS. However, that’s not the only problem. If you take a dollar in cash, you take a dollar out of the profit. If you are selling your business for five times its profit, every dollar you have taken will cost you $5 off the selling price. If you have taken $10,000 over a period of a year, then you have actually taken $50,000 off the sale price of your business. The potential buyer will only believe what they see.
Review your overheads. Is there expenditure that shouldn’t be there? It may be legitimate to meet some personal expenses through the accounts, but if you incurred high expenses on travel that isn’t important for business, it may give the impression that the business isn’t really that sound. This type of activity that you may undertake to minimize taxes isn’t what you should be doing if you want to make your business saleable.
Reduce your inventory to an optimum level. “Optimum” means the level of products that you actually need to keep your business up and running. Most businesses are overstocked, and that brings additional costs like handling, debt servicing and staff time. And if you think these are petty expenses, you are mistaken. $100,000 in surplus products can shoot up your business costs much more than you think. If you are inefficient and carry too much inventory, the buyer won’t want to pay you for it.
Think about your competitive advantage — and document it. If you are selling on the open market, whether privately or with an agent, you will need to prepare a disclosure document for prospects to consider. One of the key questions is, “Why would someone buy my business?” Answers like “We give great service” are not specific enough. You need to provide reasons that provide your business with a clear tangible advantage over the competition.
Prepare a store manual. Documenting how you operate, from setting up the store to your marketing agenda, provides a new owner with confidence that you have a reliable formula for generating sales.
Build your database. Prospective purchasers are looking for consistency and some certainty of future sales. This can be difficult to guarantee, but a strong database will at least show you are able to communicate with those who have bought before. What is your social media following? How big is your email list? How often do you engage them both?
This article originally appeared in the December 2017 edition of INSTORE.
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