About to sell your business? Here’s how to prepare

For most start-ups, the idea of building the business and then selling it is not uncommon. We’ve seen it with larger companies such as Instagram and WhatsApp, and many smaller companies also tend to go down this route.

Ceding control of your brainchild can be a difficult decision and preparing your business for a potential sale can be a lot of work if you don’t know where to begin. Here are some things you should take care of before you decide to make the jump.

Clean your house

Make sure your paperwork is presentable and up to date — do not wait for a buyer to pop up. This is no different to starting to clean your house only when your guests are at the door.

Organise your invoices and financial statements. Anticipate questions that potential buyers will have regarding your finances and have the answers handy. If there are any loose ends, tie them up.

Working capital is one of the key metrics a buyer will look at, so let your clean-up revolve around making this aspect of your business as healthy as possible.

Manage your forecasts

Selling your business is more about selling future prospects than current performance.

This is tricky because you need to convince buyers that this investment is worth their while. Having a professional draw up forecasts is going to make a big difference to your story.

Your forecasts should also come with market research. Present the numbers and contextualise the operating environment for the buyers. This will strengthen your investment case.

Know the value of your business

Don’t clean up just for the sake of a potential buyer. Knowing what’s going on with your business will give you a better idea of the valuation and allow you to ask for a fair price for your business. If you guess the value, you may set the price too high, which will scare off potential buyers.

There are many things you need to take into consideration. Valuations include tangible things such as inventory, buildings, movable assets like cars, and so on. You also need to factor in intangible assets such as goodwill, the brand value, any patents, trademarks or copyrights.

Bring in the professionals

An accountant can help you fix your books and ensure that the information you share with potential buyers is reliable and the timing makes sense. Financial records should ideally go back a few years, between three and five years. Make sure buyers can see your statement of financial position, statement of cash flows and statement of profit or loss. If these look shady to you, you can also work on making them look better while you prepare for a buyer.

A lawyer will help you with the legal aspects of selling your business. They’ll assist with the transfer of ownership, but can also help you navigate legal caveats should potential buyers flag concerns as they carry out their own due diligence.

Have a strategic handover process in place

If you’re running a one-man show or small shop, you might be the face of the business. Think about your business without you being the main driver — can it survive without you? If not, will you be able to assist with the recruitment and handover when it comes to replacing you?

Once you’ve ticked all these boxes, you can begin looking for potential buyers. This may require a little marketing, especially if you’re not sure how to articulate the benefits of buying your business. At the end of the day, you need to have a story that will make potential buyers interested, and to do that, you’ll need to have a compelling story.

Once you’ve ticked all these boxes, you can begin looking for potential buyers