Preparing for a Sale – Even if You Have No Plans to Sell

Many business owners are so consumed with the day-to-day responsibilities of running a company that they don’t have time to consider the idea of selling. But even if retirement is the last thing on your mind, know this: It’s never too early to start planning to sell. You never know when circumstances (such as poor health) or opportunities (an offer that’s “too good to pass up”) might force your hand.

“Preparing to sell” can be as simple as performing a self-assessment that identifies your company’s strengths and weaknesses. The information you gather can help you focus on the most promising aspects of your business and address any issues that may be hindering profitability.

3 items

You can perform your own assessment or ask your financial advisor to perform it for you. Either way, you should end up with three items at its conclusion:

1. A clean bill of health. Look at earnings, profitability, market share and productivity over time to confirm these numbers are on an upward trajectory. Although short-term slips are to be expected, particularly when the broader economy or your market sector is weak, your company’s financials should generally show positive trends. If instead of good health you spot signs of deterioration — anything from falling profit margins to declining client numbers — plan to address these issues as soon as possible.
2. A solid list of strengths. Tally your assets — physical, financial, intellectual and cultural. Determine, for example, the strongest items on your company’s balance sheet, your company’s most valuable assets and what your management team does particularly well. You should be able to assemble a robust list of “selling points,” even if your prospective buyer is only imaginary at this point.
3. An honest accounting of weaknesses. Ask if any of your company’s weaknesses are serious enough to make a buyer have second thoughts about acquiring it. If so, those same issues are probably holding your business back right now. Every company has challenges — some challenges that may seem formidable. You may have trouble raising new capital to expand, or be unable to contain rising raw materials costs. Perhaps a new competitor has entered your market.

Repair and renovate

Once you’ve completed your assessment, bolster and expand on strengths and fix or minimize weaknesses. Sounds like a lot of work, right? The key is prioritization.

Break each goal down into the time and money you’ll need to achieve it. Some prioritization decisions are easy. For example, a minor problem that will take a lot of work to get resolved should be put on the back burner. Anything that’s actually bleeding money — such as a severely underperforming segment or product — should obviously go to the top of your list, particularly if you can quickly sell or discontinue it. For all the items that fall somewhere between these two extremes, weigh how they affect your company’s bottom line against how easy they are to address.

Consequences of poor preparation

Here’s an example of what can happen when companies fail to prepare for an eventual sale. A family-owned business started out in manufacturing, but over time it expanded into areas such as real estate, retail and technology. This had been a natural evolution, and some parts of the business began consuming more time and costs than they returned in profits.

When the company took a big financial hit following an adverse legal decision, its owners started thinking about selling off some or all of its assets. They hadn’t planned for a sale and the unfocused nature of the company’s operations and disordered financial records would likely make selling the company in whole difficult. The owners decided to spin off their real estate holdings and software patents to raise capital and refocus on their core business.

They hired an M&A advisor to help get these assets ready for sale, and ultimately were able to sell them for a fair price. But it required time and effort that would otherwise have been spent bolstering the business. Three years later, the company shut its doors.

Short- and long-term rewards

Even if you have no plans to sell, preparing for the possibility means that you probably won’t be in a desperate situation should a sale become necessary. Take the time now to conduct a self-assessment, and then act on your findings.

© 2016