How to Groom Your Small Business for a Six-Figure Sale

By Marsha Kelly | Blog

Jul 05

When most people think of entrepreneurs and small business, they envision a craftsperson or hobbyist with a great new business idea who breaks away from the nine-to-five grind by building a dream into an empire. This mythical visionary leads the brand through decades of growth and then retires, passing the reigns of their brainchild to a trusted protégé.

Preparing your business to be sold

Start with the Intent to Sell

While this makes for an appealing story, the truth is that most entrepreneurs sell their businesses. In fact, a growing number of business-people start brands with the intent to sell them.

In 2016, 7,842 small businesses changed hands, the highest number in ten years. Factors that encouraged this development included a higher percentage of successful businesses (making them more marketable) and a generally favorable economic climate. The difference between each sale being a success or a failure boils down to a simple question: Did it result in a profit for the entrepreneur?

Whether or not selling your brand is your goal, it is wise to launch and nurture a business with its sale in mind. Starting at the beginning, here are a few brand-flipping points from the pros.

Phase I: The Brand

A) Pick the Right Market

This is good advice whether you end up selling your company or not. Give yourself ample time to conduct the necessary market and competitor research. Potential purchasers will be doing the same homework. They will be more interested in buying your brand (at a higher price) if you are involved in a niche market that is currently growing and has projected room for continued growth.

B) Pick a Great Name

Keep in mind that this is not a pet project. Pick a name that has universal instead of personal appeal.

– Don’t Name the Business After Yourself. While there are pros and cons to christening your brand with your own name, if your intent is to sell, the cons far outweigh any benefits. Most notably, potential buyers won’t want to be hamstrung by a personal attachment.

Also, if you sell your name, you will be limited by what you can do with it in the future. A notorious example of this mistake is Wally Amos, who sold his brand ‘Famous Amos’ to Kellogg, and can no longer profit from its world-wide success.

C) Spend Money in the Right Places

Invest capital in areas of the business that increase its marketability and appeal, including logo and packaging. Be frugal with purchases like office space and equipment that will not enhance the brand’s value.

Phase II: Build Toward Resale

D) Keep Great Financial Records

This is not only sound advice for the general health of your business, it also makes a huge difference when you put your brand up for sale.

– Hire a Professional Accountant. Regular accounting reports and professionally prepared tax returns are necessary forms of financial transparency. They will go a long way toward convincing prospective buyers that your business is a solid investment.

– Don’t Hide Money for Tax Reasons. While writing off business expenses may save you money at tax time, it does not look favorable when you are presenting your business for purchase. You will want your business earnings and profits to look as robust as possible.

E) Keep Detailed Process Records

Imagine that you are tasked with composing a manual that can guide a protégé through the successful management of your business. This manual will detail daily, periodic, and annual processes such as purchasing, inventory, and hiring. An easy-to-use master list of processes can be a huge selling point for your on-the-market brand. Not to mention, even if you don’t sell, a User’s Manual for your business is a useful tool.

Phase III: Preparing or the Sale

F) Make Sure it’s the Right Decision

Before you go through with the sale, take time to reconsider whether you want to do this. Just because you started the brand with the intention of selling it, doesn’t mean you have to now (or ever). Don’t go putting all your business in the street, but discreetly ask some advice from uninvested 3rd parties.

Try to consider the proposition for the first time. Don’t think of all the preparation that has gone into grooming your business for sale. Only consider whether selling the brand makes sense for you at this point. If you can pass this test, you will feel much better about letting go of your brainchild.

G) Determine Your Business Valuation

As with selling a home, determining a prudent asking price is crucial. Too high and you will spend excess time (and money) spinning your wheels. Too low and you won’t reap the full financial benefit of the sale. Before you worry too much about your abilities to execute this point, read the next one.

H) Hire a Broker

You may be the best at the content of your business, but that does not mean you are a professional at selling it.  Luckily, there are people who specialize in this trade. Like real estate agents for your business, brokers work with you closely through the process of listing and selling your brand.  Trust me: they are well worth the money.

Phase IV: The Transaction and After

I) Get the Majority of the Sale Up Front

Generally, business sales work like this: a lump sum at close then a percentage of profits (royalties) for a specified amount of time after the sale. My advice is that you orchestrate the sale of your brand so that you turn a profit from the up-front portion of the sale alone.

You have no way of knowing how the purchasers of your company will manage it or if they will be profitable. While it will be nice to have the continued benefit of royalties, you don’t want your own financial success outside of your control.

I) Don’t Work for Your Old Business

This last point has more to do with peace of mind than profitability. (Although one could argue the two are related.) Many business sales include a clause requiring the selling party to provide training to the purchasing party. Resist the urge to generate additional income for yourself by remaining behind as a consultant (effectively an employee) for your old brand.

In this situation there is too much propensity for the relationship to become strained or even hostile. The last thing you want is to remain observant but helpless as the new business owners make unfortunate decisions with the brand. It is much better to make a clean break and focus your energies on the next prospect.

A Clear Plan can Help you get Full Value for your Business

Whether or not you decide to sell your business will depend on factors as individual as the business itself. There are many stories of success and failure out there in our great capitalist history. Do yourself a favor and research as much as you can before you pull the trigger on a decision as big as the sale of a brand. Then, stand on the shoulders of the giants who came before you. With drive, preparation, and a little luck you will write your own story of success for the ones who come after.

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About the Author

Marsha Kelly sold her first business for more than a million dollars. She has shared hard-won experiences as a successful serial entrepreneur on her Best4Businesses blog, where she also regularly posts business tips, ideas, and suggestions as well as product reviews for business readers. As a serial entrepreneur who has done “time” in corporate America, Marsha has learned what products and services work well in business today. You can learn from her experiences to build your business.

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