How do I prepare my business for sale?
Independent of whether you set out on your entrepreneurial journey with the aim of building a sellable asset or you’ve recently decided you want to sell your business, there typically is a lot to prepare to make sure you and your business are ready.
I typically recommend starting the preparation process at least two to three years ahead of your target sale date. This way, the changes you are making to your business will become business as usual and should reflect in your balance sheet - one of the key drivers of your business’s value at the time of acquisition.
Scalability and Predictability
At a very high level, a business worth selling should be both scalable and predictable. Plus, there’s a bonus requirement, which I want to call out here: it should also be understandable.
This means it has the potential to grow; it’s clear where the growth will come from, and the buyer understands how it operates and makes its money.
While this doesn’t sound particularly complex, it takes a lot to make that your business is scalable and predictable WITHOUT YOU driving this.
So let me break it down a bit further.
A business ready for sale should meet the following eight criteria:
A solid financial history: The business should have a track record of profitability, stability, and growth documented in auditable financial records. As mentioned above, you want to make sure that it’s easy to understand and that any changes to the offer suite and business model you have made to increase its value are reflected in your financial statements and the budget for the upcoming time period.
A clear value proposition: The business should have a unique selling point that sets it apart from its competitors. You want to protect your intellectual property through copyright and trademarks (or even patents, if you have a product business), as appropriate.
A well-defined target market: The business should clearly understand its target customers and their needs. Your business may be interesting to some buyers because they want to break into this market, or they may want to offer your services to their target market (which you don’t yet serve), and this is a clear growth strategy for them. Either way, clarity and specificity are fundamental.
A robust sales and marketing strategy: The business should have a proven strategy for acquiring and retaining customers. But not only that - the strategy should not rely on you, as the founder or business owner, but be delivered by your team. A team that will stay in the business after the sale to drive growth.
A well-structured and efficient organisation: The business should have a clear organisational structure with well-defined roles and responsibilities. Again, you should have completely removed yourself from the day-to-day running of the business, and all roles critical to the operation should be clearly defined and filled with high-performing team members.
A well-maintained and updated operational infrastructure: The business should have well-maintained and updated systems, processes, and technology. You have an operations manual that clearly defines how your service is delivered and to which standard. It includes guidance as well as templates or resources needed to fulfil your client’s requirements. Prioritise processes supporting service delivery over back-office processes as your acquirer will likely already have a finance function, for example, and will integrate the two (with a preference to keep what’s known and familiar).
Legal and regulatory compliance: The business should comply with all applicable laws and regulations. This means you have contractual agreements with clients, partners and suppliers and are compliant with legislation such as GDPR in Europe, for example, to contact customers for marketing purposes. Businesses don’t always take contracts too serious when they first start out, as the risk is low and legal advice expensive, so this is often a gap when it comes to a sale and can be a deal breaker during due diligence.
A favourable reputation: The business should have a positive reputation and brand image in the market. It almost goes without saying, but I want to call it out as this can pose a risk, especially as the business owner starts to withdraw from the day-to-day running of the business. If some of the above requirements (e.g. the operational infrastructure) are not in place, then this will impact the standards of service. The balance of letting go of control and letting go of the business emotionally to get ready for a sale while staying engaged due to the uncertain timelines is a difficult one, and it’s something you should be aware of and prepared for.
Not sure where to start?
As far as priorities are concerned, I always recommend starting by simplifying and standardising your service(s) as this drives a lot of the other criteria I have listed.
Have a look at how to create a scalable service before you start tweaking your offers.
