Preparing Your Business for a Resale:
My mentor, Tony Robbins eloquently emphasizes;
“If you want to be successful, find someone who has achieved the results you want and copy what they do and you’ll achieve the same results.”
Sounds mind-numbingly simple… but it’s truth. Successfully creating an exit strategy and selling a business is as simple as allowing the same path of those who emblazoned the way be fore you. Zarian works with sellers to plan their exit strategy and add the lip-gloss to their business for resale with 5 mission-critical steps.
Wikipedia says that Lip gloss is often used when a person wants to have some color on their lips, but does not want an intense, solid lip color effect (i.e., a more “made-up” look), as lipstick would create. This is a great guiding principal for packaging a business for resale: Enhance the assets without concealing the business in any way.
The most effective way to do this is to hire a broker. A good broker often has an upfront retainer for the time and fees associated with the preliminary valuation, industry research, packaging and lead generation. But this fee is well worth it. I have been involved in deals that sold for more than double what the seller thought the business was worth. The primary reason for this disparagement is in the optics. There is much more to the value of a business than cash flow (which can be manipulated).
Zarian works with Sellers to plan their exit strategy and add the lipgloss to their business for resale with 5 critical steps:
Step 1 – Financials
Sellers should begin by doing a preliminary valuation of the business. The most effective method for businesses grossing under 2mm is a Seller Discretionary Earnings or SDE. (Business’ with revenue exceeding 2mm should use EBITDA). Several items will be collected from your broker such as:
- Taxes P&L’s
- Income Statements
- List of Assets (along with depreciated replacement cost)
- List of Liabilities
- Lease and Franchise Agreement (if applicable)
When preparing your financials, be sure to clearly delineate personal items such as personal car loans, personal cell phones, etc. Make it clean, and supply supporting documentation for these ‘add-back’ expenses. You should definitely continue working the business, but refrain from incurring any new expenses, now is not the time to grow, it is time to tighten the ship.
Step 2 – Reputation
Gather and or solicit recommendations from Facebook, Yelp, Google, review solicitations, customer surveys, etc. This confidence validator cannot be understated when positioning a business for resale.
Step 3 – Assets
Make sure all assets are working properly and are in great condition. Think about this in terms of selling your house. If one toilet doesn’t flush, the buyer’s perspective is tainted. He is now focused on defects rather than ad vantages. And remember assets include the intangibles as well. Employees are an area often neglected when an owner is ready to transition. Keep all agreements current and make sure all employees continue to be compliant with company procedures.
Step 4 – Differentiation
Identify any Unique Selling Points for the business. These can be industry, market or business specific. Generally, these items are used in the factors used to create the busi ness’ multiplier.
Often a business has become so rote that many of these unique aspects have become clouded. In response to this ambiguity, I have literally taken out a sheet of paper with clients and had them write down everything that is posi tive about their business. Then did the exercise in the inverse – list all of your competitors’ advantages. Only with clear optics can you discern what your true unique business differentiators are. This is a powerful tool when selling a business.
Step 5 – Forecast
Owners who take the time to create a forecast along with a viable growth plan, give a clear and concise message to buyers that the business has strong viability even after a transition of ownership. A sustainable business with a short and long-term growth plan gives buyers an under stated confidence and assists with bank validation for financing the venture.