If I am thinking of selling my business, where do I start?

If you are thinking of selling your business, one of your first questions to answer is more than likely; where do I start?

One of your first starting points is to be clear exactly what is being sold. This may seem obvious but many Sellers think they will deal with it when they get an offer. So let’s break this down and look a little more closely at it.

The two most important things to a buyer when looking to acquire a business, is current cash flow and the potential of the business. From the buyer’s perspective, the cash flow is the fuel that feeds the business to pay the suppliers, employees, landlord, tax man, lenders and of course, leave something left over for them after all their work and capital investment in the business.
For the buyer to achieve the above, they need to purchase all the assets of the business so they understand what each asset does and how it contributes to the cash flow and/or potential of the business. As the seller of the business, it’s therefore important that you make it clear what those assets are and present them in the best possible light.

So if you are thinking of selling your business, your immediate response to this question may have been “I am selling the business as a going conce
on an ‘as is’ basis.” This is perfectly fair. But you need to do a little better than that. And I’ll explain why at the end.

So we are agreed the business is being sold. When you have your first buyer meeting at the business, the buyer will be absorbed in processing what they can see and assume they will buy with their purchase of your business. The first thing to do is therefore remove any items that are not part of the purchase price. If you have collectibles such as paintings, antique cars or items that are personal to you and not needed to make the cash flow of the business, remove these now.

If the business has inventory, make sure the inventory is fresh and as usable as possible. If a buyer sees a lot of old inventory with doubtful value, it will become a specific negotiating point in the transaction and may kill the deal. If time is on your side, start selling the inventory to your customers even if it needs to be at a reduced price. You are likely to get more from your customers than being forced to sell it as a discount as part of the purchase price to the buyer.

The next thing to do is make a list of all the Fixtures, Furniture and Equipment. Hopefully this list is already in place as your accountant would be using this list as the depreciation schedule for your tax return. If the list doesn’t exist, now’s the time to build it as when you close escrow upon selling the business this list will be required. If the list is old, now is a good time to update it by making sure you still have everything and it is in good working order and condition. If it can no longer be found, remove it from your list and talk to your accountant about writing it off for tax purposes. If it’s still on the list but it no longer works, sell it or get rid of it to make the presentation of the business better and allow the items that are working and in good order stand out to the buyer.

If your business has Works In Progress, make sure you can easily arrive at a value for those items. It will become a negotiating point in the transaction.