Preparing your business for sale
by John Lightbody, Partner
You’ve nurtured your business from the ground up, and if you’re thinking of making your exit, chances are you want to leave your business in the hands of someone who will be just as dedicated as you’ve been over the years.
Successful business sales take careful planning, and lots of it. We recommend that you start the planning process well before your anticipated sale date to allow enough time to properly prepare the business for sale. Start this planning as early as possible, as you’ll ideally want 2-3 years to get everything in order.
Review financial details:
- Ensure that your operating statements accurately and fully summarize operations for each of the past several years. If such statements are only compiled, not audited, perhaps the most recent one or two years should be audited to provide potential buyers with greater confidence in the numbers. Notes should be made to explain expenses that a buyer would not incur (such as generous compensation and fringe benefits paid to owners) so the buyer can better predict ongoing expenses it will incur after buying the business.
- Clean your balance sheet to remove incorrect or outdated entries. Personal loans to and from the business should be paid off as soon as possible.
Accounting for employees:
- Review and update your employment, confidentiality, and non-competition agreements to ensure that key employees will remain with the business after the sale (without the risk of having them leave and compete with the business).
- As you get closer to announcing the business is for sale, consider amending employment agreements to provide key employees a substantial bonus and a salary guarantee if those employees stay (typically 12–18 months) after the closing.
Double check key components that will keep business running smoothly:
- Review and update your trademarks, copyrights, patents, and other intellectual property to ensure they are up to date and protect your business as currently operated plus any planned growth and expansion.
- Review and update your contracts with key customers. Pay special attention to these areas:
- Duration of the contract – it should last at least 12 months past the anticipated closing date
- Assignment – it should allow assignment to a buyer of the business without getting the consent of the customer
Consider your buyers:
Determine if likely buyers are in the family (children, nieces and nephews, etc.) or among your employees. If so, you have the benefit of overseeing training and preparation to help them take over and continue successful operations of the business. This takes time and careful nurturing, but the advantage of having a buyer who is active in and familiar with the business is that less work will be required in the other items listed above.
If you’re ready to think about you will be taking over your business, keep an eye out for our follow up blog post – “Who will buy my business?”