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It is only natural that many company leaders reach a point in their tenure where they are ready to try their hand at something new. Perhaps they want to break into another industry, or it could be that they’re interested in retiring and are ready to break ties with their current business venture. Whatever the reason, they need to start thinking about the best ways to end their relationship, and, from a financial standpoint, that likely means selling their company.
For best results, most business advisors would likely recommend a five-year wrap-up plan. This approach ensures loose ends are taken care of and that the business will still function following a change of leadership.
What steps can you take to make sure that your company will be ready for sale within the next five years?
1. Prepare your financial records
Any potential buyer will want to see verifiable records that the company has been stable and has achieved steady success. Ensure you have at least the last three to five years worth of financial records available in an easy-to-understand format. Also include projections for future growth in various timetables (think one-, three- and five-year marks), as well as any historical patterns that have had impacts on the company, and be prepared to explain any anomalies.
2. Streamline
You need to make your company look attractive to buyers, and that won’t be the case if there are any inefficiencies. You need to review your processes, product pipeline, management and staff from top to bottom. Consider whether someone coming in would have to get equipment and start from scratch, let go of unnecessary middle management to save money in payroll or retrain new people on faster production processes. If that’s the case, consider streamlining for effectiveness now to make the business run more smoothly.
3. Normalise stock
As your sale date gets closer, make sure you’re not overbuying stock, but don’t underbuy either. Buy what you need, nothing more, nothing less. Anything that’s left at the time of the sale will be included in the value of the company, so you will be compensated, but be fair. Ensure that the buyer knows what’s selling, when, any patterns and any other information that is pertinent.
4. Delegate
As a company owner, it makes sense to want to own a number of responsibilities. But if the company can’t function smoothly without you, you need to train those who will be staying with the business and begin delegating now when you can continue to monitor and oversee. Keep in mind that this also includes ceasing expense accounts, company cars and other perks.
5. Put the feelers out
You’re going to want to start looking for a buyer during this period, because few people will come to you. Hiring a business broker might be a good option, and networking within the industry is also worthwhile, to see if similar companies are looking to expand. Be prepared to be patient, as independent buyers may move slower due to financial constraints.
During this time, but as the sale date gets a little closer, you also need to consider how you’re going to tell your team. You need to mitigate any fears about job security, while making no promises until you have any confirmations from the new owner. You do need to be sure to alleviate fears, however, so tread a fine line, because if employees begin jumping ship, this might scare off potential buyers.
For more information on preparing your business for sale within the next five years, get in touch with the team at Ulton today.
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