Prepare Your Business for Sale by Getting Your House in Order
Avoid missing out on a sale because of overlooking small details.
Getting your house in order is an old saying that means getting all your finances in order.
In some respects, a comparison could be made between preparing a house for sale and preparing your online business for sale.
You wouldn’t put a messy house on the market, would you? You’d make sure the house is clean on the surface and structurally sound by making sure the roof is solid, the electrics are working throughout the house, the boiler is functioning, and the pipework isn’t leaking, among other necessities that make a house livable.
So, how livable is your online business?
As a leading online business broker, we reject over 80% of businesses submitted to our marketplace.
One of the main reasons we reject a business is because it isn’t ready for sale.
We’d like to tell you how to get your online business ready for sale, and it starts with organizing your finances.
Getting Your Numbers Straight
This isn’t the most exciting part of selling your online business, but it’s really important.
Knowing your financial figures inside out doesn’t just get your business ready for sale; it helps you to understand your business and make it more profitable by cutting unnecessary expenses.
You might notice areas where you can make your business more cost-effective by considering possibilities you wouldn’t have thought of had you not checked your finances. For example, you may notice that you are paying high storage fees for your products and find a cheaper storage facility, or you find out that you can get higher commissions from a different ad network for your advertising business, etc.
The best place to start getting your numbers straight is creating a profit and loss (P&L) statement.
This is a record of all your business revenue, expenses, and profits at a minimum, although they can incorporate more financial information. You can have your accountant put this together for you if you have never done one before or to save you time. Brokers can also usually help you do this when you list your business for sale through them.
When it comes to selling your business, having an air-tight P&L is an absolute must.
It allows buyers to see the history of your business when they’re conducting their due diligence. They can also project the future profitability of your business.
Money is the lifeblood of business, and buyers know that, so it’s always good practice to make this a top priority.
Making Your Business Transferable
When it comes to getting your business ready to be transferred to a new owner, there are standard login and credential transfers, and then there are business-specific assets that need to be prepared.
As an example, some sellers of fulfillment by Amazon (FBA) businesses want to keep the Seller Central account they have on Amazon, so that would warrant a different type of business transfer than if they had included the account in the sale.
You will own assets that you might not want to include in the sale because you want to transfer them over to your other businesses. If that’s the case, you may have to think about how that affects your business transfer to the new owner.
An often-overlooked business asset is supplier exclusivity agreements, as it isn’t a root element of the business like a domain or code ownership for a software as a service (SaaS). Be sure that this exclusivity agreement is available to your business buyer and that it will stay in place.
Speaking of contracts, if you have employees, their contracts will need to be handed over to the buyer if the employees agree to continue with the business. Be sure to check whether the contract is still legitimate when the owner of the business is changed.
Documenting Your Business Operations
If you see our article on increasing the value of your business by becoming redundant, you’ll learn that the less you work on your business, the more it’s worth.
Most business buyers aren’t looking to spend 20–30 hours a week working on a business. It makes it harder to scale if you spend all of this time maintaining the business. Plus, a lot of buyers invest in multiple businesses and wouldn’t want a business that distracts them from other projects.
There is a minority of business buyers who are looking for a hands-on project and are happy to take on a business that requires work. They aim to fix the business by improving areas that are slowing down growth, especially operations.
This is one of the first areas that this type of business buyer will look at when they acquire your business. That said, they will expect a lower price for your business as it will take more time for them to get the business to a point where it’s ready to be scaled.
To overcome this scale barrier, you should get your business operating like a well-oiled machine with all micro-operations working as efficiently as possible.
The best way to do this is to create standard operating procedures (SOPs).
SOPs are step-by-step guides you create to document your procedures. You want an SOP for every operation that is required to maintain your business. For example, if you do keyword research every week for new topics for your content site, you can create a step-by-step guide that allows anybody new to the business, either freelancers or the buyer themselves, to take over that operation. Adding some video tutorials will make it a better experience for the new owner to acquire your business and understand the operations.
Even before you get to the point of selling your business, having SOPs allows you to hire employees to take over those persistent mundane tasks that suck your time but are necessary to keep your business running.
It’s best to hire virtual assistants (VAs) for these types of operations as they are inexpensive to hire. Because not a lot of experience is needed, it is a lot easier to find employees capable of taking over this operation.
The added benefit of having SOPs is that it minimizes human error. You avoid the accidental over-ordering of stock or incorrect formatting of an article that looks unappealing on your website. With regular, tried-and-tested processes and fewer errors, your business becomes way more efficient to run as you’re not wasting time trying to remember how to do things or fixing mistakes you’ve made.
One operation you should create an SOP for is monitoring your analytics.
Monitoring Analytics
If you haven’t got analytics set up on your website yet, go and do it now.
Analytics is like a P&L for your website traffic. It is another metric that gives you a picture of the history and current state of your business.
When you have analytics set up, you can track the traffic levels for your website. You can see when you’ve had peaks and troughs, and you can compare that to your sales to see how they correlate.
Your analytics also lets you see the traffic quality in terms of how much traffic is converting to sales.
This is essential for a buyer since it tells them how healthy your business is, in addition to providing them with the conversion rates of your website. Their aim here will be to spot any growth opportunities in your business.
You can also track ad performance to see how profitable your campaigns are. If you’re on Facebook, for example, having analytics outside of Facebook allows you to double the strength of your data, as Facebook analytics isn’t always reliable.
Conclusion
You might have built a nice looking house in a nice neighborhood, but if your foundations aren’t as solid as they can be, it’ll be harder for you to sell.
The same goes for your online business. Use the advice in this article to strengthen the foundation of your business, increase your profits, and prepare your business for a dream exit.
If you’d like some help to prepare your business for sale, you can reach out to us, and we’ll be happy to give you some free personalized advice with no obligation on an exit planning call.
