A weekly look at Wyoming business questions from the Wyoming Small Business Development Center, part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.
By Leonard Holler, Wyoming Small Business Development Center regional director, Casper.
"What is the best way to sell my business?" George, Douglas
I have been asked this question many times and there is only one answer that I have come up with -- it depends.
Based on several articles by John Burley published in Inc. Magazine's online Resource Center, I have summarized some of his ideas and some of my own thoughts on the subject.
Before you do anything, think about why and what it is you are selling, what makes your business really worth something to someone else and are there things you can do before the sale to improve the prospects. If you really are ready to sell the business, ask yourself the question, "Is my business ready to be sold?"
Most owners think that the business is valued on the sales that it can generate, when instead it is the cash flow and earnings before interest, taxes, depreciation and amortization from the business that are better measurements of its value.
Sales and sales growth do matter, but profits need to grow at a similar pace. Depending on the type of business assets, industry, local economics and a plethora of other factors, the value of the business can be influenced by just about anything, but usually buyers are looking to the business's ability to generate cash flow and a return on their investment.
Here are some suggestions for preparing the business for sale -- months or even years before you entertain any buyers.
Organize and clean up the business's books and records. Make sure that the books and financial records are in order. The better organized the records are the easier it will be for an adviser to value the company.
It will be more attractive for a potential buyer and will possibly speed the closing of the transaction. Keep books up-to-date, eliminate transactions that may have required adjustments at year end, get rid of personal advances from or to the business and get contracts signed that might be transferrable to the new owners. Oral agreements add risk and may degrade the value of the business being sold.
Improve management delegation so that, even if you are extremely important to the operations of the business, you are not irreplaceable. Buyers that might have your skills would not find that this is a problem, but an investment group or someone who lacks your skills would devalue the business based on the cost of hiring a replacement.
The less important you are as an owner to the business, the more valuable the business will be to the new owner.
Make sure the business is serving customers, you have good vendors and business equipment is in good repair and operating effectively. Take a look at the customers, vendors and operations to see if there is risk associated with having too many eggs in one basket. Heavy reliance on one customer, vendor or supplier could put the business at risk.
Expand the customer base as much as possible and have backup suppliers so that the business would not be significantly impacted if those were lost. A person valuing your operations will look at the condition of equipment to see if it is being maintained or in disrepair.
The condition of the business adds value so spruce up the place, clean up the workspace and make sure the equipment is in good working condition; perhaps give it a coat of paint.
Finally, once all this is accomplished, surround yourself with a good advisory team. A certified public accountant, attorney and a business intermediary or adviser of some sort should be consulted regarding the potential sale.
A blog version of this article and an opportunity to post comments is available at http://www.wyomingentrepreneur.typepad.com/blog/.
The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, e-mail wsbdc@uwyo.edu or write 1000 E. University Ave., Dept. 3922, Laramie, WY 82071-3922.
Posted on Tuesday, July 21, 2009