You may know where the paper clips are kept, and you may able to quote the quarterly numbers from 2010, but do you know how much your company is worth? How much can you expect to get when you put the business up for sale?

Selling the company is hard. It’s your baby. You’ve nurtured it over the years and made it successful and profitable. Great, but how much is it worth? Obviously, you want the best price for all those late nights and missed vacations.

Be smart before you sell. Here’s how.

1. Create a list of potential buyers. A business buyer is usually looking for a business with which s/he has some familiarity, in a local or nearby market. Don’t stop with a list of people just like you. Expand the list of possibilities to include:

- Your business partner(s), of course

- Long-time, essential employees who could buy the company over time from proceeds of company sales

- All employees with an employee stock ownership plan (ESOP) in which employees contribute a portion of each paycheck for a greater ownership stake

- Family members, but be sure to start this sale early and work with an attorney who’s experienced in business succession planning*

- Vendors who know how profitable your company really is because they provide services or raw materials

- Competitors who can sew up a service area simply by purchasing their biggest competitor – you

- Private investors and venture capitalists

- The business next door to your own, which might like more space to expand

2. Pay down company debt. If you can sell your business debt-free, it’s worth more to a prospective buyer. To look your best, pay down debt before you put the company on the market.

3. Prepare your team to own your dream someday. Employees are an excellent choice to buy. There are even regulations to guide you along the way in creating an Employee Stock Ownership Plan (ESOP).**

The benefits of an ESOP are numerous and immediate. Your team isn’t working for the benefit of owners. All of a sudden, they are owners, buying more company with each paycheck.

It’s also a great way to keep your best and brightest employees who recognize a good thing when they see it. If they stick around, they can become part owners and shape the direction the company takes in the future – an attractive benefit for upper-tier managers and employees with highly-specialized expertise.

4. Boost cash flow. Demonstrate an increasing rate of cash flow over a period of time. Ask your banker for ways you can speed up the time between completing work and having the cash deposited into your account. A pile of receivables is a potentially attractive incentive to some buyers, but a company with a robust cash flow is likely to be the more attractive option.

5. Boost income. Expand your service area. Rent out the extra space in your building. Offer more services or more products. Market heavily and expect a decent ROI on your promotions – the kind of thing a potential buyer looks at.

6. Get your books in order. Make sure income and outgo are clear. Pay off any tax liabilities or liens against the company. The more organized you look, the more attractive your company looks to serious buyers – the ones with capital to buy you out.

7. Fade away. If you’re planning to sell the business and turn it over to others, don’t just stop coming to work one day. Instead, prepare for the transition. Over time, delegate your tasks to others, whether it’s opening up in the morning or meeting with the company’s legal counsel. Gradually give up control to avoid mass confusion among the troops.

8. Finally, make sure your future is covered. You’ll need money to live, or to start another business as a serial entrepreneur. Make sure you don’t give up too much to the point that your future happiness is jeopardized. How will you be paid, when, for how long, and by whom? Get it in writing.

Selling your business can be stressful – like selling a house – but you can eliminate some of the stress by preparing to sell your business. Start well before your intended departure date to make sure the transition of ownership is smooth – and free of stress.

*For more information on succession planning, visit Nevada State Bank’s Family Business Resources web page.

**http://www.esop.org/

 


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.