Making the decision to list your business for sale is one of the most important choices that you, as a business owner, will have to make. Listing prematurely can lead to unexpected surprises in due diligence, lower valuation by prospective buyers, and even an inability to close the sale. We have compiled a list of 10 signs that may indicate that your business is not ready to be sold. If you are planning to sell and one or more of these apply to you, dedicate some time to resolving these issues – it will make all the difference!
1. All of the information necessary to run your business is in your head. This is especially true if you have trade secrets or other sensitive information that is key to successfully running the business. This information needs to be tangible so a new owner can access it as well as protect it.
2. The business’ financial documents are not in order and have not been evaluated by a CPA. This is a huge red flag to a potential buyer. There can be no cutting of corners when it comes to the business’ financial statements. Get your documents in order well before you ever plan to list.
3. Pre-sale due diligence has not been performed. When a potential buyer starts to look at your business, he or she will almost certainly perform their own due diligence, which will uncover any issues your business has. If the first time you learn about problems is when the buyer discovers them, he or she will have a huge advantage in negotiating the price - or the deal may fall apart altogether.
4. You do not know if your business has any liens or unpaid taxes. This is critical in determining the value of your business. Find out what you owe others before you think about selling.
5. You have not hired the right team of professionals. When you are preparing to sell your business, you should consider hiring a CPA, attorney, business broker, and/or a financial adviser. Selling it by yourself will likely be more expensive and stressful in the long run.
6. You have not started looking at your business from a buyer’s perspective. If you have not considered how an outsider will value it, you need to immediately take a step back. Taking off the rose-colored glasses will let you see your business the way a buyer will and will allow you to address any issues and make much-needed changes – which will improve the value.
7. You do not have a management succession plan. This is the process of preparing your business for a transition in leadership. Will all of the key employees stay in their jobs after the sale? Will the current executives have the same role? How will a new owner transition into the business? Planning these before you list your business will make the entire sale process smoother.
8. You have not calculated how much money you need to retire or continue your current lifestyle after the business sells. Knowing exactly how much you need to make from the sale will let you know what the gap is between what the current valuation of your business and the desired sale price. Then you can focus on either improving the value of your business or reducing your financial need in order to fill the gap.
9. You do not have a plan for your time after you sell your business. Many business owners, especially those looking to retire, do not spend much time thinking about the significant changes in lifestyle they will experience after they sell their business. They can quickly run out of things to do and realize they were not emotionally ready to live the retired lifestyle. Taking the time to plan your life after the business sells will give you peace of mind.