Whether you are starting a new business or considering selling your seasoned business, start with the end in mind.  In the early days, it’s challenging.  There’s so much to do and so little money, the business owner has to set priorities.  As the business grows, it’s tricky to balance the need for big company-type organization with the costs of implementing systems.

Regardless of where the business is stable or on a growth curve, here are a few things you can do to make your business a better target for sale.

·         Keep the records clean.  The first thing a buyer prospect will want to see is three to five years worth of historical financial statements.  If a division of the business is the target, the buyer will want division-level financial data.  Refrain from using the business checking account as your personal account since this will cast doubt on the reliability of the data you provide and cause the buyer to mitigate risk by making a lower offer.  High risk equals lower value. 

·         Get professional help.  Businesses involves a lot of moving parts and whether you’re dealing with the day-to-day or looking to sell, you’ll need to assemble a good team.  Attorneys guide you to the best corporate structure.  Certified Public Accountants address important tax issues and assist in setting up your bookkeeping.  Financial planners put together retirement plans.  In-house accountants and financial analysts prepare budgets and forecasts.  Commercial bankers advise on financing options.  

·         Separate yourself.  In the beginning, you ARE the business and you’ll need to wear multiple hats.  Quickly, though, you need to work yourself out of a job by putting systems and procedures in place that operate when you’re not there.  A buyer isn’t interested in keeping you around for very long and if they can’t take over your duties quickly, they will consider the purchase high risk.  An organized operation makes for an attractive target.

·         Minimize risks.  Diversifying your client base, training employees on safety procedures and making sure your income and payroll taxes are filed timely are all ways to reduce risk for you and for a buyer.  Lower risk equals higher value.

·         Develop good cash flow.  The one thing more important than low risk is abundant, stable cash flow.  You’re selling a cash flow stream.  If the stream is declining, you’re going to get less for it – if you can sell it at all.  Buyers like growth potential and solid cash flows offer a good base from which to grow.  Good cash flow equals higher value.

·         Know what it’s worth.  To evaluate an offer or begin marketing your business for sale, you need to have an idea of what the company is worth.  A business appraiser (or business valuator) uses the company’s financial statements and comparable sales transaction data from the marketplace to determine the most likely value or range of values for the business.  Whatever the result, remember that true value will be determined by what someone is willing to pay.  

Along the way, step back and ask yourself – “Would I buy this business?” If not, you may still have some work to do.