The 5 Key Areas You Must Evaluate Before Selling Your Business

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One of the main concerns that buyers have when they are thinking about buying your company is its consistency and predictability after the transaction.

What does that really mean?

Buyers are usually worried that when there's a change of ownership, the performance of the company will not be the same. You know your company better than anyone, you know its processes, its employees, its vendors, its customers. The day of the close, this will change and the new buyer is going to take over and make changes.

Your job as seller during the negotiations process is to ensure the buyers that the business they are buying will still be profitable after the transition in ownership. They need reassurance about the company’s prosperity and future performance after the sale.

So, how do you reassure perspective buyers?

You have to demonstrate what you know to the buyers and show them that you are in control of all business functions and operations.

Before you proceed with the sale of your business, create a sales plan. Don’t forget that planning brings better results. Evaluate the strengths and weaknesses of your company, to identify the weak areas that should be fixed. You will also identify the strengths of your business that are attractive to buyers.

Remember that buyers are more experienced than you are in the sales process. They might have bought businesses before, but for you, this might be the first time you are selling a business, so you need to get into their mindset and see things through their lens.

Buyers typically focus on five key areas of your business, they examine them carefully and scrutinize them in an attempt to devalue your company and lower their value.

Which are the Five Key Areas?

The basic truth is that no matter what kind of industry you are in or what type of service you provide, there are five key areas that have to shine before you even think about trying to sell your business.

It takes a different mindset and a strategic plan to groom a company for a liquidity event and a sale.

To be sustainable, the business must have implemented best practices, processes and systems in these five critical areas:

1. Legal Area: You need to look through conflict and risk management issues and examine what are the risks and rewards for customers and vendors? Is there pending or threatened litigation? What about the corporate structure of your company?

2. Finance & Accounting: Are current financing terms consistent with your business model? Are there audited financial statements and accurate reporting of finances for internal, investor and external use?

3. Human Capital: Are management roles aligned with the compensation model and business objectives? Is there an exit or succession plan in place for key executives? Are company assets and intellectual property protected if key employees leave?

4. IT/IP Systems: Are there systems in place to offer data security and disaster recovery evaluations for your business?

5. Sales & Marketing: What kind of strategies do you use to promote and sell your products and services? Do they align with your business and revenue goals?

When one or more of these areas are not effective or efficient, the entire organization is impacted. Without systematic processes surrounding each of these critical areas, more money, time and effort are required to resolve conflicts and maintain momentum. Instead of devoting those resources to developing new business or services, they are used to resolve issues that could have been avoided.

The Bottom Line

When patterns start to emerge and it becomes apparent that many of these patterns could have been avoided if best practices were followed, it is time for new strategies. While it is difficult to change processes and practices that may have been in place for years, it becomes essential when the owners are thinking about selling their business.

Make no mistake: Selling your business is a business in itself. It is a process, not an event.

To realize the ultimate value of your business, preparation for sale must be intentional, focused and systematic. The internal obstacles your company considers normal are not going to translate into value from a seller’s perspective. Focus on the five critical areas, make them shine and you will have a much higher chance of a successful sale.

In our next series on the Growth to Exit blog, we will do a deeper dive into all five key areas. Start applying the information to your own company’s internal processes, and you will quickly see areas that need improvement.

It’s all part of the Growth to Exit legacy.

Your company is the product. Growth to Exit® is the process. The Buyer is your customer.

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