How to Make Your Business Attractive to a Buyer
Are you ready to sell?
Business owners must have their affairs in order to attract a potential buyer. The combination of our recent economic recovery and the long-term investor portfolio shift to business acquisitions puts the owners of well run businesses in a good position to earn a premium over previous historical trends for selling businesses.
What factors are buyers using to judge a “well run business”? Experts in the Portland market highlight these factors as being critical to buyers:The business must be professionally run.
- The business must have a good track record of earnings.
- The future of the business must be laid out in a clear business plan supported by financial projections.
- Management must be able to demonstrate a good understanding of the marketplace and articulate how to capture opportunities and minimize threats.
What can you do to make your business attractive to a buyer?
FIRST, make certain your legal positions are sound. This includes:
- An ownership structure that is clear.
- Board or management meeting minutes that are up to date and available on demand.
- Significant contracts that are properly documented.
- Up to date corporate policies and procedures.
SECOND, prepare a summary of your last three years of financial statements.
When putting the financial package together explain all significant figures and changes from year to year. Keep adjustments to a minimum and consider the buyer’s perspective when making them. There is no quicker means to chase a buyer away than to have them believe you are deceiving them. Many small and even medium sized businesses will not have independently attested financial statements. In those cases, buyers may be interested in reviewing income tax returns to verify the financial information you provide.
THIRD, develop a plan that highlights the changes you foresee in the business over the next three to five years. This allows the buyer to see the future. A balanced plan, including both the opportunities for and threats to the business, will make it more credible. There is no better marketing pitch than one allowing the buyer to picture future operational and financial success. Even if you are not contemplating the sale of your business, building a concise plan with targets give direction and purpose to your company.
The simple fact is, preparing your business for sale is exactly like preparing your business to be well run. Professional practices, an understanding of your market and a well thought out plan to capture opportunities in your market will make your business profitable and attractive to buyers. With buyers in today’s market outnumbering sellers, it is a good time to be a seller.