To prepare to sell your company includes personal preparation and company preparation. Entrepreneurs need to disconnect not only from an identity point of view but also from operating the actual company.
The 7 steps to prepare to sell your company:
- Personal preparation – the mental challenge is as important as financial considerations.
- Make a market analysis – a buyer like to compare the company’s view with his own.
- Update the business plan – this will come handy when to present the company potential.
- Ensure you have key executives – a buyer needs to know that the company is not overly dependent upon you, since you’re leaving.
- Asset standard – a well maintained manufacturing business is more attractive than a worn-out business.
- Visibility – attractiveness also come from what you see. First impression is important.
- Investment memorandum – write down why you sell, what you sell, the potential, the financials and suggested transaction.
So, let’s dig into each of the 7 steps to prepare to sell your company:
Prepare yourself before you sell your company
Building a company is a lifestyle and you need to prepare to sell your company. Not only the company, but also privately, yourself. Once identity and daily routines are closely connected with the company, to most entrepreneurs.
Questions to ask yourself:
|Why is it time to move on?||Retirement?||Energy?||Financials?|
|Aspirations once sold?||Remain in business?||Employment?||Hobby?|
|What to do once sold?||New business?||Consulting?||Hobby?|
|Financial status once sold?||Independent?||Need cashflow?||Need a salary?|
|Timing to sell your company?||Peek earngings?||Strategy shitft?||Family situation?|
Make a market analysis for your industry
Make a market analysis when you prepare to sell your company. A buyer will most likely have a view on the market. But, he will also be interested to understand the company’s own market view. To compare notes.
Most entrepreneurs has a clear picture how their market look like and what the potential is. Take the chance and write it down, as a 15-page power point or a 4-page word document. Share it with the management team and get their input and you will have two clear benefits:
- Input to your business planning process. To align your key staff in your discussions.
- Synchronization ahead of a possible management due diligence by an investor or company buyer.
You’re leaving if you sell your company, but your key executives remain with the business. You shall ensure that the team is synchronized when you prepare to sell your company. That’s important to potential buyers. Document your market analysis and make sure everyone buy into the same market view.
Prepare to sell your company by updating your business plan
Updating your business plan when you prepare to sell your company is probably the most important thing you can do, next to having key executives in place, which we will talk about next
Selling your company is all about selling the company’s future. A buyer need to know that the future looks promising. That is how a buyer get a return on his investment buying your company.
The business plan is the document where you describe the company priorities, milestone targets, resources and activities needed and the expected financial outcome. That is pretty much what a buyer would like to know, in addition to proof of the company’s historical success.
Not too sales oriented. It should reflect your business development and business plan within the company. It should be your inhouse business plan that your staff feel add value.
Then, secondly, the business plan is also need when you prepare to sell your company. It’s a key document to give to a potential buyer.
Does your company have key executives in place?
To have key executives in place when you sell your company is critical to a successful sales transaction. To let go and let others step up in their roles is very important part when you prepare to sell your company.
In most cases you leave the company when you sell it. A buyer needs to know that the company is not overly dependent upon you as a founder and entrepreneur.
What happens, do you think, if you are the key salesperson of the company and you leave? Which will happen when you sell the business.
This is probably the most difficult part to any entrepreneur preparing an exit. I have yet to meet a founder that truly let go of his duties well in advance of his own exit. It definitely makes selling a company more complicated and have a negative effect on valuation.
Do the right thing. Make sure your key executives operate the company successfully well ahead of your exit. That is how you maximize your value potential.
Well-maintained assets are more attractive than worn-out assets
What you see is what you get. Selling a company is not only about market analysis, business plans, financial statements and forecast, or people. Buildings, offices, machinery, the web site and, in some cases, social media presence are important as well.
Well-maintained assets are more important to sales and operations in some industries than others. But a great impression helps to make a deal happens.
Visibility is key when selling your company
Seeing is believing. It’s hard to sell you company if no one sees you.
Once potential buyers have been approached, they will most likely do an online search about your company. It’s important with a good impression even if someone searching your business may not read all your texts.
A good impression helps selling your company. A good impression indicate success and a professionally run business. You do not want to come out as a barging or, worse, overseen as something with limited future potential.
To give your web site a fresh update and to add a post stream on your’s and your company’s LinkedIn account gives visibility. It does not make or break a deal, but a professionally looked upon business is certainly easier to sell than the opposite.
Make an outline for an investment memorandum
You shall make on outline for an investment memorandum when you prepare to sell your company. Make a one-pager what’s really important to you in selling your business.
An investment memorandum is a sales presentation summarizing the business plan, the market potential, financials and suggested key transaction details. You don’t need to write the investment memorandum until your ready to start selling your company. But you shall make some preparations:
These are the bullit-points you shall write on a one-pager to sort out what is important to you. It will be asked by a buyer and it shall be covered by the upcoming investment memorandum:
|Why do you sell your company?||Time for next level?||Lack of energy?|
|What will you do afterwards?||Compete?||Retire?|
|Transaction ideas?||100% sell?||Fundraising?|
Summary – what to prepare to sell your company
Try to put yourself in the shoes of a potential buyer when you prepare to sell your company. What would you look for?
A healthy business with a relevant but promising outlook is probably high on the agenda. Your key executives will be highly important to a buyer while high dependency on yourself is certainly negative.
Remember that you will leave the company when you sell it, in most cases. You shall prepare to sell your company.
Good luck. Take time to prepare. For yourself, your family and your business.
Read more about different valuation methods.