There are five key things I like to look at when a business wants to sell. A business should form a habit of tracking and improving these areas. This can improve the chances of a successful sale and the price a buyer is prepared to pay.
1. Business plan
A business with a plan shows that its actions are intentional. A business plan shows buyers its market position, risks and how it can pivot. It demonstrates why the plan is defensible and explains how, and by whom, it will be delivered.
2. Cash flow
A business must be able to fund working capital and replace its assets. If it cannot, the offer may be lower than the replacement asset value.
3. Reporting
Accounts and forecasts need clear supporting evidence. Gaps raise questions. Trust then erodes and scepticism sets in. What you say during negotiations must match what you report. A forecast should look realistic, and the supporting data must be clean and organised.
4. Risk exposure
Buyers need to know what could go wrong and how the business would cope. Identify the risks and prepare a risk matrix and mitigation plan. Some key areas include:
- Revenue concentrated among a few customers.
- Inventory supplied by only one or two suppliers.
- Outstanding legal disputes or regulatory issues.
- Limited licence or insurance coverage.
5. Transferability
A buyer needs to know the business can keep running after you leave. The easier it is to transfer, the more attractive it can be to a buyer.
Document who does what, how they do it and how critical each person is to the business. Review customer and supplier relationships; these should be shared across the team. Check that contracts can be transferred or renewed by a new owner.