Ideally, business owners become motivated to sell their business at the same time business buyers are willing to offer the sellers an attractive price. Unfortunately, that is usually not the case. Many business owners wait to plan the sale until the reasons to sell become a compulsion.

Owners who wish to sell their business at the best possible price should consider the following suggestions:

• Anticipate the possibility of a sale, whether or not the decision is imminent.
• Make the sale when the timing is good from a financial standpoint.
• Be prepared to hold on to the business if the future prospects are much better than the past few years, but beware if the net profit results fall below previous years there could be a serious decrease in value.

Like trying to time the peaks and valleys in the stock market it is best to make a plan and prepare the business for sale at a specific time in the future.

When making a plan to eventually sell the business there are some important things to consider.

1.     Have excellent financial records.

2.     Clean up the financial statements, especially the balance sheet.

3.     Have a good profit history.

4.     Have the business in good general condition.

5.     Have adequate personnel.

6.     Have the business appraised.

Have Excellent Records

The most credible accounting records are five or more years of financial statements audited by an independent CPA firm. After that, are statements reviewed by an outside CPA firm. If the seller has only tax returns, good supporting documents should be readily available.

Clean Up Financial Statements

Remove items a purchaser may find undesirable, such as non-operating assets. If the business owns real estate, the seller may be wise to place the assets in a separate corporation or partnership, charging back rent at a market rate. The seller should also have a positive balance in the cash account on the balance sheet on the audit date, even if it means delaying a few payables.

Have a Good Profit Record

The best profit record is three to five years of consistent profitability, preferably increasing each year and with profitability for the most recent period at least at (or above) industry averages. Establishing a good profit record may require (1) careful expense management and (2) relinquishing some hidden perks in the form of discretionary expenditures for a time.

Have the Business in Good General Condition

Inventory should be should be current and represent an appropriate investment for a reasonable period of operations. Business documentation and promotional materials should be up to date. All equipment should be in good operating condition. Have a lease with at least five years remaining and ideally an assignment clause.

Have Adequate Personnel

Be fully staffed with the personnel needed to operate the business. Identify critical personnel such that the business would be harmed if they departed, e.g. trained technical personnel or key salespeople with vital customer relationships. If possible have these employees agree to an employment contract or non-compete agreement.

Have the Business Appraised

A valuation analysis will help the prospective seller determine a range of reasonable prices before exposing the business to the marketplace.  A complete written appraisal is not necessary for determining a range of acceptable prices. The appraisal should include a review of the other five important considerations to get an objective opinion of the positioning for sale.

By Paul Visokey, Partner.