Selling a Business – Start the Process Now! Part 2: Position Your Business for Sale 
This article is Part 2 of a 2-part series focusing on selling a business.
While sales of businesses are strong, it is estimated that well over a majority of the businesses listed for sale do not close!
The first step is to understand how much time and energy you are willing to invest into potentially increasing the value of your business. Do you want to sell in the future for a possible higher value or would you prefer to sell your business today at a discounted price? There is no guarantee that the right buyer will be interested in buying your business when you want to sell it. However, there are several steps you can take now to better position your business for sale. In order for your business to look attractive to a buyer, your business should have multiple sources of income, a healthy customer base and a solid management team in place.
Clean up business records. You need to be sure your business’s legal entity has been properly set up and the company’s minutes are up to date. There should be a clear record of the approvals of major transactions and business decisions. If your business name has not been trademarked, determine whether a trademark of your name and logo would help the sale of your business. If the business operates under an assumed name, the assumed name must be properly registered.
Clean up existing contracts. The business should have written agreements with its employees and independent contractors which protect your business’s confidential information, intellectual property, and prohibit employees and independent contractors from competing against the business. Agreements with customers should be in writing and clearly state the scope of the services and products you are providing or selling. Be sure you know the dates any agreements with suppliers and vendors will be renewed.
Clean up financial records. It is imperative that you keep complete and accurate financial records. At a minimum you will need 3 years of the business’s financial records. These need to be clear and easy to understand. Address any outstanding IRS issues, other tax issues, or issues with lenders. Remove any personal expenses from the business’s financial records. Oftentimes privately-held businesses minimize profits on their financial records in an effort to reduce income taxes. These financial statements may need to be recast to properly reflect the true monetary benefits of the business.
Review your lease assignment provisions. Be sure your lease provides for an assignment of the lease to a buyer. The sale of your business could be thwarted if the landlord insists on renegotiating the lease terms with your buyer.
Get a valuation of your business. Once you have a business valuation, you will have a better understanding of how much you can ask for your business. It’s important to understand what kind of return on investment potential buyers expect from your business and what your business can deliver.
Explore opportunities to increase revenues. Be alert to possible ways to increase revenues. Are there new verticals you should explore? Are there marketing strategies you can adopt which will improve sales? Are there investments you should make in the business that will make a significant impact on sales?
Implement a plan to remove yourself from the daily business operations. Business owners frequently hold a tremendous amount of information about how to run the business in their heads. These processes and procedures need to be clearly documented so you can transfer this knowledge to others. A potential buyer needs to be confident that he will be able to successfully run your business.
Develop a business plan. You will need to develop a “story” for selling your business covering the business’s financials, sales, business plan, industry projections, recent improvements and other important aspects of the business. This story may be adjusted somewhat depending on who you target as your potential buyer.
Keep advisers, such as attorneys, accountants and financial planners, involved in your thought process around exit planning and retirement.
Selling a business is a complex transaction. For more information, please contact Kathy Tremmel at Tremmel Law, PLLC at (512) 539-0317 or kathy@tremmellaw.com.
Copyright 2016 Tremmel Law, PLLC. All rights reserved.
