Sell
Your Business Tips, Hints & Techniques:
Enter
your name & e-mail address below and each week I'll send you
detailed tips, facts, resources & ideas you can use right
away to help sell your business faster and for more money.
Step
1 - Preparation
Add
Value To Your Business By Properly
Preparing These Items
We've
talked about preparing your Financial
Statements as an important step toward getting the best
price when you sell a business. Now let's talk about some other
aspects of your business that, with a little preparation, can
increase your selling price.
In
this section we will discuss your company's leases, contracts
(with customers and/or suppliers), inventory and assets. And
we will talk about what you can do during the preparation phase
so that these things add value to your business in the
eyes of the prospect.
Making
Your Lease More Appealing To The Buyer
If
you are renting and your business depends heavily upon location
for it's success, than the specifics of your lease will be key
to a successful sale.
In
addition to the monthly rent amount, buyers will look for two
significant features in any lease:
1.)
Assignment - Can your lease be taken over by the buyer without
your landlord's approval?
2.)
Length - How much time is left on the lease and does the renter
have the option to extend it.
Leases
are usually written with a "no-assignment" clause.
This means your buyer can not take over your lease without the
landlords consent. Unfortunately, some greedy landlords
will see this as an opportunity to dramatically increase
the rent - often to the point that it kills a sale.
You
should read your lease now to see just what the terms and limitations
are concerning assignment.
If
you have only a year or two remaining on your lease, a smart
buyer will make any purchase offer contingent upon his ability
to negotiate a long term lease with the landlord. At
that point, the fate of your sale will be out of your
control and rest in the hands of the buyer and landlord.
Even
if you have a few years remaining on your lease you should consider
negotiating a new lease now. You don't have to tell the landlord
that you are selling, just that you'd like to lock in a
good lease for the long term.
In
addition to adding a clause that will allow you to transfer
the lease, you should attempt to get as many options-to-renew
as you can.
Even
if you have to start paying a higher rent it will be worth it.
A small increase in your rent won't make your business
less appealing to buyers, but a lease that is about to expire
or can't be assigned will.
Know
The Value Of Your Contracts
Gather
up all the contracts you have with customers, suppliers, independent
contractors etc. and review the terms of each.
Make
a list of all your agreements and include the expiration date
and general terms. For certain types of businesses, most buyers
will request just such a list early on in their evaluation process.
To protect your confidentiality do not include the names of
the companies or any contact information.
If
possible, try to evaluate these contracts from the buyer’s
point of view. Which of these agreements would you, as the
buyer, be glad to assume? Which ones would you want to avoid?
In
truth, that question may be impossible to answer. One buyer
may love the fact that you have a contract locked
in place to provide you products to a customer for the next
year or more. Another buyer may view that exact same agreement
as a negative believing he could negotiate a better deal.
As
with leases, a contract may or may not be assignable. So some
agreements that are no longer attractive may not need
to be assumed by the buyer. Likewise, before you promote the
value of a low cost contract with a supplier, you want to make
sure that contract will pass on to the new owner - don‘t
just assume that it will.
Of
course, if you have a contract in place, and based on current
market conditions you know it's a good deal for your
company, and you know it is in fact transferable to a new owner,
then you certainly will want to play that up. This is exactly
the kind of turn key feature that entrepreneurs are looking
for in an existing business.
The
bottom line is that you want to know the details about all your
contracts with customers and suppliers ahead of time
so that you can correctly answer all the buyers’ questions.
At some point the buyer will review your contracts in greater
detail - usually in the Due
Diligence phase. So you don’t want to make promises
that later turn out not to be true.
And
just as importantly, you want to maximize the value,
in the buyers eyes, of the contracts they will inherit.
Evaluate Your Assets & Inventory
Sell
or dispose of any unproductive assets such as old machinery
or unused computer equipment. A buyer won't pay for them
and they only detract from the overall appeal of your
business.
Likewise,
now is the time to finally give up on all your outdated, obsolete
and damaged inventory. Your customers haven't bought it and
neither will your prospect.
Better
to liquidate these assets now and get what you can for
them - even if you take a loss. You may be able to donate some
of these things to charity and get a tax break.
Padding
your asking price with old, unwanted inventory or unused equipment
won't make you money but it will slow down the sales
process and possibly make the negotiations very contentious.
Make it easier for your prospect to buy your business - get
rid of this dead weight.
Next,
look at the machinery and equipment that is still in use. Is
any of it in need of repair or replacement? It so, invest
in those repairs and replacements now - it will be well
worth it. The buyer wants a turn key business - one with
no need for immediate investment on their part to fix things.
If,
after observing your facility, the buyer believes he'll have
to sink a significant amount of money into updating the
operation, it can only lower the selling price. Also, it will
make your business look less desirable compared to the other,
more modern businesses the buyer is considering.
How
To Make A Good First Impression
Take
a look around your office, store, warehouse or whatever your
location. What kind of first impression do you
think it will make on a visitor?
Is
the office clean? The warehouse organized? Do employees greet
visitors with a smile or with a sneer? Do they acknowledge visitors
at all?
If
you set aside a place outside for employees to smoke, is that
area littered with hundreds of cigarette butts?
Admittedly,
these are minor things that may have no effect on the
business' bottom line. But to a buyer who is thinking of putting
his life savings into the business, these small details
send a powerful message.
There
is no need to make major renovations. Small repairs,
such as replacing a cracked window or fixing the sign out front
can be done quickly, cheaply and will greatly improve the initial
impression the buyer gets when he first lays eyes on
your business.
If
any of the needed repairs are the responsibility of you landlord,
request that the repairs be made ASAP.
All
of the steps mentioned here will take just a little time and
almost no money. Yet, they can have a major impact on
the sale of your business. While much of this may be common
sense, even obvious, you would be amazed how few business sellers
will take these simple steps when they put their business on
the market.
This
is good news for you because with just a little thought and
effort up front you can make your business stand out
from all the other less prepared businesses your prospect will
see.
Sell
Your Business Tips, Hints & Techniques:
Enter
your name & e-mail address below and each week I'll send
you detailed tips, facts, resources & ideas you can use
right away to help sell your business faster and for more money.
NEXT:
The
Selling Memorandum - How To Put One Together And Why It's Such
An Important Sales Tool
