Tips to Make a Business Easier to Sell

Let’s face it, business buyers and commercial property investors have a lot of opportunities to choose from when they searching online.

Closing a Transaction

They easily sort results and inquire on numerous different opportunities available.  Because of this, getting and keeping their attention is hard.  Given that you have put in an amazing amount of blood sweat and tears setting up and operating your business, when it comes time to secure a buyer, how well positioned is your business to attract and keep the buyer’s interest?   To put it another way, will the business appeal to a pool of qualified buyers?  If you have a good exit strategy plan, then you are in luck because most likely you will have the following in place:

• Clear and organized financial records
• Clear and organized customer records
• Marketing plan in place and actively used

• Landlord is willing to offer the same lease terms or better to the buyer

• Business workspace is tidy and organized

• Machinery and Equipment in working order with updated maintenance logs

• No key customers that will defect when you, the owner, leave the scene
• No key vendors that will adversely affect terms for the business once you, the owner, transfers possession to the buyer
• No pending litigation or even disputes with landlord, customers, vendors or competitors
• No issues with A/R & A/P
• If applicable, Do not expect significant money for dead or slow moving inventory

• Employee handbook detailed with key practices and operational procedures

• Employees can function without the owner’s presence for a reasonable duration of time

Some of these may seem obvious, such as keeping good books and records, but there is more to it.  You need to actively track financial metrics.  Break down Gross Revenue by sources, such as in-house sales, sales generated by each salesperson, sales from repeat orders, sales from website, sales from each marketing initiative, sales by time of day and week, etc.  The more metrics you track, the more data the buyers have to work with and better prepare themselves to take over and grow the business successfully.  A buyer can ascertain which sources of revenue to focus on and which revenue sources may not be worth the time and effort.

Track your expenses the same way, find out where your business is spending more than it needs to and implement the necessary changes.  As part of our Exit Strategy planning service, we help you determine these things, and in many cases, you will find that you can streamline your business and make it more profitable.  This allows to you to free up time for yourself or to put back into additional business development.  After implementing the changes brought forth from the exit strategy planning, you will find that you will enjoy running your business, that it is worth more and that possibly you will want to keep it for longer.  You will be glad you chose to make the plan and put the work in to implement it.

Speaking of business development, having a well thought out marketing plan and actually implementing it, is another key thing factor that keeps buyers engaged.  Let’s start with the basics, make sure that your website is complete with easy to access contact information.  Have login and server information or the appropriate contact for the website manager, so the buyer can implement any changes necessary.  Beyond that, if there is a good marketing plan in place, buyers will feel that they will have a leg up and a quicker path to realizing the improvements they want to make to the business, since your previous efforts should have raised the awareness level of your business to its customer base.  Qualified Buyers only buy businesses with serious upside, and your business has more upside with a marketing plan in place that is actively in use.

The landlord.  We have covered leasing issues extensively on the website.  As you know, if your landlord will not cooperate, you have major problems.  Also, if your landlord is inconsiderate and/or rude, you will have serious problems as Buyers do not want to be stuck on a long term lease with a difficult landlord.  Buyers have the intuition to know that a landlord who is a nightmare will lead them to have many sleepless nights and headaches.  On the bright side, make sure to nurture a good relationship with your landlord, as they are a major key to a transaction with your buyer.  Make lease payments on time, and ensure that you are current on the rent.  Also, be a good neighbor and make sure that your business is not a nuisance to any neighbors.  Be reasonable when it comes to making repairs to the facility.

Hopefully on the front end of the lease, you negotiated a reasonable assignment clause, which basically means a low transfer fee (if any) and not having you stay on as a guarantor in the case of a lease assignment to a buyer.  If you are close exercising a lease option term, you may want to consider renegotiating, so you can get favorable terms in your lease.  We have negotiated many leases and lease assignments.  Also, on the bright side, in this market, Landlord’s are often writing new leases for buyers, which offers a chance to remove yourself as a guarantor to the new lease.

Keeping the business facilities clean and neat is a simple tip to keep a buyer’s attention.  In our experience, time and time again when showing a physically messy business to a buyer, the buyer would inevitably be too distracted by the mess to focus properly on the business to mentally picture themselves as the owners.  The action of the buyer mentally picturing him or herself as the owner is a key to keeping them engaged.  Many a buyer has walked away from a transaction because they were turned off by a lack of tidyness.

Customers are very important to a business, so you need to clearly assess which customers are likely to take their business elsewhere after you leave the business.  Be upfront about this with yourself and the buyer.  For example if you expect 10% of your customers will go elsewhere after you leave and take about 15% off of your bottom line, then factor it in to the price you expect to receive for the business.  Some advanced planning can help you mitigate the potential attrition of customers.  Some examples would be getting the customers used to ordering from and interacting with the employees and gradually weening some customers off special discounts.  The less the customers rely on you, the owner, the better, as they are less likely to miss you when you leave and take their business elsewhere.

The same thing applies to Vendors.  Make sure they are going to offer the same terms to the buyer.  If not, then prepare to make concessions to compensate the buyer.  Qualified buyers will do their homework on Vendors and Customers, so be ahead of the curve and facilitate the buyer’s Due Diligence on these items.

When it comes Furniture, Fixtures and Equipment (FF&E) make sure they are all in proper working condition with good maintenance logs.  Good logs are key to keeping Qualified Buyers engaged, they want to know the regular maintenance costs and expected remaining useful lifespan of the FF&E.  Smart buyers will forecast capital expenditures in their Due Diligence period, so have this information ready, or prepare to have a lot of buyers drop out on you.  If you have non-working or excess FF&E, then start to liquidate that away before buyers start to visit the business.  Some buyers will assume it is in working order or assume that you are going to fix it, which will mean more sticking points in transactions that never need any extra to begin with.

The same goes for minor equipment and office decorations.  If you have prized memorabilia on display at the business that you want to keep, take it home before buyers show up.  We’ve had to deal with buyers and sellers haggle over $30 shredders and special photos of celebrities, again not worth the headache, so take it home.  If you don’t want your employees to notice, then make sure to find a suitable replacement for the office that will occupy the emptied spot.

We have covered the topic of inventory in great depth on this website.  To summarize, do some spring cleaning, liquidate the ‘dead’ or slow moving inventory, and be prepared to consign or carry a seller note on the inventory.  Buyers are tying up capital up front in one shot for inventory that you might have gradually accumulated over the years.  They want to have enough money left over for working capital, so be prepared to negotiate, carry or consign inventory if you have too much.

Clear up Accounts Receivable (A/R) and Accounts Payable (A/P).  A/R is important to catch up on before you hand over the reins to a new buyer.  Also, during Due Diligence a Qualified Buyer will thoroughly review the A/R to track which customers pay on time, which pay late, and which pay irregularly.  Make sure to keep good records and make sure to have a strong collection enforcement policy at the business when your employees interact with the customers.  Reviewing your A/R records may give you the insight to get rid of problem customers to focus on acquiring better customers that pay on time and utilize less of your resources.  With the A/P, make sure you are caught up and paying on time, this will help the Vendors deal confidently in the new buyer, ad the Vendor will have more confidence in the ability of the business to perform.

Employees can be a tremendous asset to your business if the circumstances are correct.  To facilitate the best possible circumstances, make sure to have clearly defined roles for your employees, and make sure to remove key frustrations for them in their daily workflow.  This will take talking your employees about the bottlenecks in their workday and workflow.  A clear employee handbook and work manual goes a long way in keeping things on track for employees, which goes  a long way in making the business run smoothly as possible.

A key takeaway for you to consider from all of this is that doing things to make the business sufficiently appealing to qualified buyers will make the business run better for you and make the business more valuable.  These are two factors that make a Business Valuation and Implementing an Exit Strategy virtually priceless.  Start now by contacting us at (323) 213-9193 or by email cs@justelementary.com