Preparing to sell a business

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Business Matter

By Manish Shah

A lot of advance preparation is required to  sell a business. Following are the areas that need attention.

Profitability:
The more profitable a company, the more attractive it is for a prospective buyer. Therefore, a business owner should focus on growing the company while keeping an unflinching eye on the costs.

Documentation:
The owner should document various aspects of business for a prospective buyer. This should include a brief history of the company, profiles of key executives, financial highlights, key employee roles (names need not be divulged), unique competitive advantage of the business, customer mix and an overview of the industry.

Reason for selling:
The owner should clearly articulate the reason for selling his business. A honest and logical reason is comforting to a prospective buyer.

Record keeping:
All the records — financial, insurance, contracts, employee information and customer information, should be organized and readily accessible. This will help speed up responses to a buyer’s queries and also make it convenient for the owner to respond to a buyer audit.

Professional help:
It is recommended that the business owner hire a broker and lawyer to handle the sale. The owner should interview a few prospective candidates before finalizing the team. Associations such as MBBI (Midwest Brokers and Business Intermediaries) have Web sites that list business brokers in a region. The list can be narrowed down by industry and proximity. The next step would be to interview the brokers on the short list and then make a final decision. The broker generally has a couple of recommendations for lawyers. This would be a good starting point for choosing a lawyer.

Valuation:
In  order to get   an  objective view,  the business owner should hire a professional to value the company. If the owner does not want to pursue this option, he should research and determine a reasonable asking price for his business by looking  at historical sales  of similar businesses.
Soul searching: Owners get deeply attached to their business, especially if they have been associated with it for a long time. Selling a business for them is analogous to abandoning their baby. So an owner contemplating selling his or her business should think long and hard before putting  the “baby” on the block. A tentative seller can dampen the interest of a prospective buyer and jeopardize the sale.

Manish Shah is the former president of Midwest Law Printing in Chicago. He also worked at Intel, PwC and Motorola. He has an MBA from Kellogg Graduate School of Management, and a MS in Computer Science from Illinois Institute of Technology. He can be reached at manishshahus@yahoo.com.

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