Seven Steps to Selling Your Business

Owners of small businesses — like many insurance agencies — spend more time working on today’s issues than tomorrow’s potential. This may keep the doors open for now, but what about when they’re ready to retire, or no longer want the businesses?

As mid-sized to large businesses grow, owners typically realize they’ll need to find a way out, but most small business owners do not have an exit strategy. Rather than selling inventory and closing the doors, the suggestion is that small business owners can increase their wealth by capitalizing on the goodwill or customer base they’ve built.

To sell their businesses, owners should employ a strategy similar to selling their house: Make it as attractive as possible by investing in repairs and improvements.

Following are basic business practices that many entrepreneurs overlook, but can help keep the company ready for market.

Write Down Processes

One can’t sell a business that is in one’s head, so write everything down. Entrepreneurs don’t typically like dealing with details and the fine points, but they must document how everything works in their organization to make it attractive for sales.

For example, spell out the roles of management and employees, not titles, but actual responsibilities. Or describe a typical customer visit. Franchise companies list these details; a business owner can use the same tactics to show the company’s value to a potential buyer.

Set Financial Goals

One cannot sell a business that is not making money. How do you know if a business is growing if you don’t know where it started and where it’s going? Once target goals have been set, measure them regularly. Look at the business’ internal processes and make sure they are still working for customers and the company. A business may be pleasing customers, but is it making money?

Know what the return on investment is, so you can explain it to interested buyers.

Have a Marketing Budget and Plan

Many small-business owners don’t allocate money for marketing. A marketing plan, with a corresponding budget, is key to attracting and keeping customers.

One rule of thumb is to spend the equivalent of one staff salary on marketing and advertising. Think of it as a “silent” employee working 24/7. Market awareness of a brand and demonstrated customer loyalty can dramatically increase the value to potential purchasers. Marketing is the last thing one should cut — even if times are bad.

Track Customer Information

Often, the most valuable aspect of a business to a potential buyer is its customer list — especially if the buyer is a competitor. Keeping track of customer contact information including names, addresses, phone numbers and e-mails (with permission to contact them electronically) is a must.

Being able to deliver customer profiles and buying habits to a new owner demonstrates how well a business is run and makes a customer list invaluable.

Keep Employees in the Loop

A staff represents a company to customers and buyers. Communicate your goals with employees and ask for ideas. They can help dress-up the business for sale.

If you’ve decided to sell because the business is in trouble, let staff know. It is unlikely to be a surprise, and few things demoralize a staff more than having to rely on water cooler rumors. Try to avoid salary cuts. Employees are the face of a business, and a salary cut may backfire. Instead, try looking at business processes to save money.

Look With a Buyer’s Eyes

Ask what information you and your professional advisors would require if you were purchasing the business, and then develop a plan to provide that information. These may include:

• Historical financial statements and tax returns;
• Ownership structure;
• Key management bios (who will be key to the future success);
• Where’s the niche (what is special about this company)?
• Litigation and other disputes;
• Other risk factors.

Get Professional Advice

Identify the areas of a business that need improvement and look for specialized help to simplify those processes. Make sure to test them before the potential buyer does. Consulting professionals who work on a part-time basis have knowledge implementing transition strategies for businesses.

So, don’t ignore one of the most vital elements of a business plan: the exit strategy. With careful planning and monitoring from day one, a business owner’s last days of business can bring rich rewards.

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