4 questions you’ll want to answer before you sell your business

It’s important to start preparing and organizing to sell your business as early as possible.

But where to begin?

Start by asking—and answering—these four questions to help guide you through the process.

Question #1: What’s the value of my business?

It’s important to get expert advice on what your business is worth early—even if the sale is a few years away. You’ll want to get feedback from your:

• Attorney
• Lender
• Accountant
• Business broker

Your attorney can help also protect any trade secrets or intellectual property, which should increase the value when you sell your business. And your attorney can create a confidentiality agreement for prospective buyers to sign, reducing the risk of sensitive information falling into the wrong hands.

Your accountant can help calculate the business value, determine the optimal price to sell and ensure that your financial records are organized. By providing accurate sales figures, you’ll reduce the element of risk for potential buyers.

Hiring a broker will help compare your business to others that have sold and assist in negotiations with prospective buyers.

You can also ask industry contacts and colleagues to note any weaknesses they see in your business. Address any problems by doing your due diligence before offering your business for sale.

Question #2: Who are my potential buyers?

What kind of person would be interested in your business? Will you be able to find them locally?

Your buyer could include other business owners, investors, competitors, suppliers or others seeking a career change.

A potential buyer needs correct and comprehensive information to decide whether your business is suitable for them. You can help this process by understanding who your potential buyer is and what they may want to know about your business.

Questions that buyers might ask include:

• What makes your business unique?
• How profitable is your business in good and bad times?
• What has been the annual increase in sales?
• When will equipment and trading assets need to be replaced?
• What are the levels of stock and investment required in the foreseeable future?

Potential buyers will likely want to view at least three years of financial statements, including income statements and balance sheets.

Question #3: What do my prospective buyers want?

Each potential buyer will probably require that certain conditions are met before deciding whether your business is right for them.

Ask them directly what they’re seeking: An investment, lifestyle, leave a legacy or their own exit. Try to uncover what they like about your business—and what worries them. Finding out buyers’ concerns allows you to address them.

One question a buyer often wants to know is your reason for selling. Provide an honest response that doesn’t suggest the need for urgency.

They’ll probably also be interested in your relationships with customers and suppliers. Buyers will be aware that there’s a risk of customers leaving after you sell.

You’ll need to reassure them that your customers are loyal to the business rather than just to you. Provide copies of any contracts, supplier agreements, leases or documents that make up the business.

Question #4: How can I make sure my business is in great shape?

Buyers prefer low risk with high reward when they consider investing in a small business. Ultimately, buyers will look for good cash flow and solid systems with the potential for further growth.

You’ll need to work through a process of getting every aspect of your business in the best possible shape to attract the right buyer.

Create an action plan for any weaknesses in your business that you want to try to resolve. Outline the steps you’ll take, the timeline you’ll follow and the resources you’ll allocate. Then, assign tasks to gain improvements before advertising your business for sale.

Make sure you:

• Tidy your financial records.
• Have optimal levels of staff and inventory to show your business operates efficiently.
• Reduce late-paying customers and remove any bad debts.
• Resolve any legal issues.
• Replace or repair faulty fixed assets.