As a business owner, you’re likely focused on profits and growth, but are you preparing your business for a potential merger or acquisition? Even if you have no intention of selling a business, running your business as if you’re planning to sell can set a solid financial foundation, help you avoid problems, and support a high business valuation if you eventually sell your business or pass it on to the next generation.
In this post, we’ll share some tips and best practices explaining how to prepare your business for a successful sale, even if selling a business isn’t in the foreseeable future.
Get Your Accounting in Order
When you sell a business, one of the first things prospective buyers will want to see is your business financials—namely, your balance sheet, income statement, and statement of cash flows.
Financial transparency is vital in any business deal and can affect the fair market value of your company.
Solid accounting is the foundation of clean and up-to-date financial statements, so work with a professional accountant to ensure your records are complete, accurate, and compliant.
Beyond the basic financial statements, other financial records qualified buyers or a qualified valuation professional might want to review include:
- Business tax returns
- Accounts receivable and accounts payable aging reports
- Cash flow projections
- Depreciation schedules for business assets
Document Your Processes
Chances are, you and your team members perform several business processes each day, week, or month that aren’t documented anywhere. But what happens when you’re not around to handle those tasks? It’s time to document those processes.
Documenting business processes isn’t just about ensuring your successor knows how to do what you do. It can also:
- Help maintain high levels of quality and consistency
- Lead to better customer service experience
- Contribute to greater efficiency throughout the organization
- Ensure compliance with regulatory standards
- Make it easier to delegate and train new employees
If you eventually sell the business, potential buyers will want to see that your business’s operations are organized, predictable, and efficient. Having standard operating procedures in place can help demonstrate this. If you don’t sell, it will still provide all of the benefits outlined above.
Protect Your Intellectual Property
Many small business owners think patents and copyrights are just for inventors or authors, but you may have intellectual property (IP) you still need to consider or protect.
These intangible assets can include:
- The content on your website
- Your business name, logo, slogan, and other brand elements
- Novel ideas, processes, and inventions
- Trade secrets
These are valuable assets that increase the value of your business, so it’s essential to protect them with trademarks, copyrights, patents, and non-disclosure agreements.
Work with your attorney to determine what IP you own and how best to protect it. If you eventually sell your business, the last thing you want is interested buyers claiming that your IP is not protected or belongs to someone else. If you don’t sell, protecting your IP prevents others from stealing it and impacting your financial health.
Minimize Your Legal and Compliance Risks
Potential buyers want to know if there are any legal or compliance risks associated with purchasing your business. You can minimize those risks by ensuring your business complies with all laws and regulations. This includes:
- Properly documenting all employee hiring and retention decisions
- Getting the right licenses and permits
- Filing and paying income, sales, and payroll taxes on time
- Complying with industry-specific regulations
- Adhering to contracts and agreements with vendors, suppliers, and customers
If you decide to sell your business in the future, ensuring you’ve complied with all legal and regulatory requirements—and documented that compliance—can increase the business value significantly. But even if you don’t go through with a business sale, compliance can keep your business well-run and organized and help to avoid potential legal issues, fines, and penalties.
Maintain Good Relationships with Your Customers, Vendors, and Employees
Your relationships with your vendors, customers, and employees play a significant role in the success of your business. As such, it is crucial to maintain positive relationships with them by:
- Communicating clearly and regularly with key employees and listening to their feedback.
- Ensuring your customers pay on time.
- Paying your vendors and suppliers on time or negotiating extended payment terms if you need more time to pay
When it comes time to sell your business, having a solid customer base, reliable vendors, and loyal employees can make your company more attractive to potential buyers.
Operating as if you’re selling your business can be time-consuming, but your efforts will ultimately pay off. If you continue operating your business until you’re ready to transfer ownership to a child or grandchild, you’re more likely to able to pass down a well-run company with strong annual cash flow. But if down the road your exit strategy changes, solid accounting practices, documented processes, IP protection, minimized legal risks, and positive stakeholder relationships can all contribute to a higher business valuation and smoother, less stressful sales process.
If you need help building a strong foundation for your small business that will serve you well, whether you decide to sell or not, please reach out! We’re happy to help you prepare and position yourself for success.