Planning to Sell Your Small Business? What Things You Should Consider

To sell a business or company, is not something that can be done overnight or over a phone call, and it is not something that can be handled by just two business owners. A business involves multiple people and companies, from employees to suppliers to customers, and a change of business ownership impacts them all. The planning and preparation that goes into starting and running a business also goes into selling it. The selling process has become more sophisticated, involving due diligence, business valuation, and numerous financial and legal checks. To ensure you get the best deals and the entire sale process goes smoothly, you need to prepare your business before going to the market. The preparation could take 18 to 24 months.

So, where should you begin?

Things Small Business Owners Should Consider When Planning to Sell Their Business

Before putting your business up for sale, it is essential to know what you seek to achieve and package your business accordingly.

Know Why You Want to Sell Your Business

A business owner may want to sell their business for various reasons, including retirement, a partnership dispute, pursuing another venture, the death of the principal owner, exhaustion, succession, and other similar reasons. Your reason will determine the right seller (third party, employee, or management buyout), the right strategy (employee ownership trust or an outright sale), and the best approach to proceed with the sale. 

Your ‘why’ could be anything from securing the best price for your business, to achieving a quick sale, or finding someone who can continue the business legacy and maintain brand integrity. Once you have determined your objective to sell the business, the next step is to assess the economic value of your business.

What Is the Value of Your Business

Your business may be your most prized possession, and if you put a price on it, that may not align with what the market thinks. Hiring an accountant for a professional valuation can help determine the actual value of your business. There are different business valuation methods, and your accountant can value the business considering your sale objective.

The valuation will highlight the market position, financial situation, strengths, and weaknesses of your business. This can help you set realistic expectations and guide you on the next steps of the cleanup.

Clean Up Financial, Taxation, and Legal Documents

Once you know the valuation, it is time to clean up your financial and legal documents:

• Books of Accounts: A health check and audit of your company’s reports, asset valuations, realistic profit forecasts, pending debts and liabilities, receipts and payments, and historical financial records can ensure the financial stability of your business.
• Legal Documents: Review your incorporation documents, leases and contracts, employment contracts, supplier terms and conditions, and legal contracts with other parties to ensure there are no complications with a change in ownership. Also, review current licenses, permits, intellectual property (including trademarks and patents), and regulatory documents, and resolve any legal disputes or compliance issues.
• Taxation: Ensure your tax paperwork is correct and complete. Clear any pending tax fines or penalties to ensure the seller doesn’t face tax issues.

A clean set of documents demonstrates how organized your business is, builds trust, and makes due diligence smooth, thereby reducing the possibility of any surprises during the negotiation process.

Remember, a minor legal or tax issue that could have been resolved for a few thousand dollars before the sale could become a deal breaker or cost you hundreds of thousands in the sale price. A legal, tax, and financial audit may look like an added cost, but it brings several times more value during negotiations.

Boost the Value of Your Business

Once your records are clear and valuation is in place, you know where your business stands. If the value is not to your liking, you could give your business some time and boost its value where possible.

• Diversify Revenue Streams: Consider your product offerings, focusing on high-margin products, introducing new products or services that attract your existing customers, tapping into a new customer base, and diversifying your customer base across different demographics and distribution channels.
• Boost Profitability: Look for cost-saving opportunities, discontinue low-margin or loss-making products and services, and automate processes where possible to improve profits. You can also examine pricing strategies and segment your offerings (basic, medium, and premium) to enhance profits.
• Documenting Operating Processes: Since the business will be passed on to another business owner, it is good practice to prepare detailed customer retention analytics, document processes to avoid inefficiencies, and reduce the training cost. 
• Organize Employee Workflow: If the strength of your business lies in its employees, you may want to establish robust workflow management. Update employee contracts, roles, and responsibilities; prepare an organizational chart; delegate responsibilities; and ensure proper business and decision-making policies are in place.

These efforts will enhance operating efficiencies, add value for the seller, and facilitate a smooth business transition. These could earn you brownie points in negotiations.

Strengthen Your Customer Loyalty

Any business, product-based or service-based, derives its business value from what its clients and customers perceive.

• Enhance Brand Value: Consider conducting a brand audit to understand how the market perceives your brand and identify opportunities to enhance its value.
• Work on Negatives: Engage with irregular customers, conduct a consumer survey, and focus on complaints and negative reviews to identify areas for improvement.
• Build Customer Relations: You can also introduce loyalty programs, enhance client communication (without spamming their inboxes) to retain existing customers, and increase repeat orders.

A business that enjoys customer loyalty brings goodwill or brand value, which helps you achieve a premium value for your business.

All these preparations need time and expertise. Once you are determined to sell your business, build a separate task force of professionals, including accountants, lawyers, and business consultants. This task force will work with you right from preparing your business for sale to putting it in the market, finding the right buyers, negotiating, and closing the sale.

Contact KSSP Partners LLP in Markham to Help You Prepare to Sell Your Business

At KSSP Partners LLP, our team of skilled accountants, business consultants, and tax advisors offers a range of services, including business valuation, bookkeeping, business analytics, and more. To learn more about how KSSP Partners LLP can provide you with the best professional assistance throughout the sale process, please don’t hesitate to contact us online, or by telephone at 289-554-5997.