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Prepare to Sell

If your goal is to build your business up in order to sell it, then you need to know what your potential buyers are looking for and build your business properly from the beginning.

This will ensure you have everything you need to attract hungry buyers and sell your business.

What Buyers Are Looking For

Buyers are looking for a business that isn’t dependent on its owner to generate profit. No buyer wants to invest in a business that could fail if the owner leaves.

However, if a buyer is interested enough in your business, he or she may propose a transaction structure that will allow the buyer and owner to work together to gradually eliminate owner-dependency over time.

In addition, buyers are looking for businesses that have a strong management team, unless the business is being purchased to merge into an existing company and won’t require continuity of management. In most cases, though, buyers are attracted to companies with solid management in place.

Besides that, buyers are also looking at the size and profits of a business. In general, larger, highly profitable businesses attract the highest-paying buyers. Many financial buyers have minimum size and profitability requirements they adhere to when investing in businesses.

Buyers are also attracted to businesses with a diverse customer base, since this tends to make a company more stable. Most buyers analyze a business’ customer base to determine the risk of loss of business, and the potential for growth within the market.

Preparing Your Business for Sale

If you’re ready to begin the process of selling your business, there are a few things you need to prepare:

  1. Determine Your Company’s Worth: The most reliable way to find out how much your company is worth is to hire a third-party valuation service.
  2. Keep Records Up to Date: Make sure you have detailed company records that give an accurate assessment of your business’ financial position.
  3. Keep Your Team Motivated: Losing key employees can bring a sale to a stop, so be sure to keep your team motivated and excited about working with the new owner.
  4. Diversify Your Client Base: Try to bring in new clients to minimize the potential impact of losing one of your biggest customers.
  5. Build a Team of Experts: Selling your business is not something you should try to do alone. Ideally, your team should include a business intermediary, a transaction attorney, and an accountant.

Adhering to GAAP

GAAP (Generally Accepted Accounting Principles) are used in the U.S. to prepare, present, and report financial statements for entities such as non-profit organizations, companies, and government authorities.

The basic principles of GAAP state that financial reporting should provide information that is:

  • Helpful for making financial decisions
  • Helpful in improving the performance of a business
  • Helpful in maintaining records
  • Helpful in making long-term decisions

Though it is not law, the U.S. Securities and Exchange Commission (SEC) requires that publicly traded companies, and other regulated companies, follow GAAP for financial reporting.

Smaller businesses are not required to use GAAP, except in certain situations (such as when obtaining credit or seeking investors). In these situations, the small business is also required to use GAAP when preparing financial statements.

Public vs. Private Sales

The main difference between a private and a public sale is the existence of a seller to indemnify the buyer, or stand behind its obligations following the transaction’s close. A private sale is defined by the existence of a known, identifiable seller.

The seller can be a corporation, a group of shareholders, etc. In a public sale, however, there is no identifiable party to stand behind the obligations of the target after.

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