This article originally appeared on Entrepreneur.com
You’ve built a company from scratch and now you’re ready to sell it. First off, congratulations! You’ve done something that most people will never do, and that’s pretty amazing. Selling your company is a big deal. If you position yourself well, you stand to gain enormously.
I recently spent time working with several entrepreneurs selling their companies. They were all deep in the negotiation process, and each of them had a slightly different approach. In working together, we discovered that while no two buyouts are completely alike, there are seven key factors we identified that all companies should consider to position themselves well for acquisition:
1. Start preparing years before you want to sell.
True, advance preparation isn’t always possible, but quick sales usually generate lower sales prices. Planning ahead will help you make your business more attractive. Take the time to address all of the small details which, if improved upon, will make your business sellable. While acquisitions can sometimes happen very quickly, most buyers want to do due diligence, and it can take months for the entire process to close — if it does close at all.
2. Before you shop your company around, clean up your act.
No one wants to buy a company before it’s ready. If your books are a mess or your systems are out of date, that’s a risk to any potential buyer. Document your policies and procedures so that whoever takes over will immediately know how to run the business. Hire great accountants and lawyers to make sure your business is in order. Build strong teams; invest in systems to track key metrics. Build the business to run without you. Use this preparation time to make yourself expendable.
3. Reflect on the past two years.
What changes, trends or differences has the business experienced? Are your sales trending up or down? Are your customers loyal or is there a lot of churn? The most attractive companies are predictable and steady. If your buyer is convinced that he or she can assume operations and continue making good money as early as today, then you’re in a great position.
4. Focus your company so that someone will want to buy it.
Attractive companies are profitable and reliable. You’ll get the most money from the sale of those types of businesses. If you’re trying to sell your company because you’ve been under-earning and you don’t really know how to run it well, you may find it difficult to attract a buyer willing to invest the time and attention to turn it around.
5. Determine what you’re really selling.
There are several ways to value a company. Are you selling your customer list, or your locations or recurring revenue? Sure, you have a name, a brand and some customers, but most of that has very little value. What would an investor be interested in? Focus on that and make it as attractive as possible.
6. Look for strategic fit in a buyer.
What is your company particularly good at? What does it need from a buyer? Is your culture laid back and collegial? If yes, that may not gel well with a severe corporate environment. Does your buyer have a vision similar to the one the company has been built on? Poor fits between companies and buyers turn into drains on resources, time and morale. Bad fits usually spell disaster for everyone involved, accompanied by a loss of revenue, customers, employees and time. Be willing to walk away from a buyer who seems like a poor fit.
7. Be prepared to air your dirty laundry during the due diligence process.
Take a good hard look at systems, culture, protocols and personnel. If you clean up your act, as I suggested in step 1, you won’t have any dirty laundry to air, but you will need to expose yourself and your company, so do the work necessary, to make yourself as transparent as possible with potential buyers.
These seven steps will help you make your business more attractive for acquisition. And that’s the whole point, right?