A profitable business opportunity sometimes comes around but does not work because the owner of the business has not properly planned a sales strategy, developed a tax plan, streamlined finances, and made arrangements for the partners or relatives involved.
Whether you are ready to sell your business now or in the future, important steps should be implemented to make your business more salable. Potential buyers will weigh purchasing your business against other investment opportunities.
If you are planning to sell your business this year, consider following these steps:
- Determine the accurate value of your business
- Don’t hesitate to seek legal and financial expertise
- Tie up loose ends
- Document your offers
- Separate your personal expenses from the business
- Organize and prepare the paperwork
Taking these six steps will also help your business stand out from the other poorly presented companies for sales. We advise using Professionals Advisors, but we hope these six steps get you headed in the right direction.
Step 1: Clean up Your Books
Are your monthly financials completed by the 15th of the following month? Are you comfortable that the P&L, Balance Sheet, AR, and AP are accurate and truly represent the overall status of your business? Do NOT run your business by only eyeballing the checkbook. The balance Sheet is critical as many businesses have errors in the Balance Sheet or they do not tie-in with the tax returns. Borrowing money is Balance Sheet driven which means buying a company is Balance Sheet driven.
Step 2: Understand your Books
One reason step one is not followed is that many times financial numbers are not that meaningful to business owners. Financials are only a useful tool if understood and utilized correctly. If you don’t fully understand your books, don’t hesitate to get some help.
Also, make sure the data is presented to you in a useful format. Many businesses have too many general ledger accounts to be meaningful. Use sub-accounts to clean up the clutter. Expense items should be reviewed as a percent of sales. Track the change in percentage of key expense accounts and manage them accordingly.
Step 3: Identify Accounts Receivable Issues
Many businesses have liquidity issues. One of the easiest ways to find the “low hanging fruit” is to take a hard look at your accounts receivable (A/R). What percent of your A/R is over 60 days old? 90 days old? Recently, a client at our urging reduced their largest customer’s 60+ days A/R by $100,000 even though sales had increased. This cash increase reduced their yearly borrowing costs by over $35,000.
Step 4: Address Inventory Issues
Inventory is another area where much cash is wasted. Check your turnover on stocked items. Items that you hold for more than 90 days need to be evaluated for different re-order or manufacturing levels.
Any inventory that is older than 180 days needs special attention. I have heard many arguments about this “great deal” clients made buying goods. However, inventory is described as a “wasting” asset. Besides consuming precious working capital, it also generates additional storage, insurance, and handling costs. Unless inventory turns and solid profits are realized-Liquidate!
Step 5: Surplus Equipment
Entrepreneurs are great accumulators of “stuff”. I am not a psychologist, but I think it provides business owners with some measure of comfort to see all the bulldozers, trailers, forklifts, and tanks that they own. Bottom line is that if an asset does not earn your business profits compensatory to its value, it is a drain on cash flow. Again, liquidate!
Step 6: Analyze Lead Sources
I believe much money is wasted on fixed cost advertising (yellow pages, newspapers, radio, etc.). I understand it is important to have a presence and a clear message in the marketplace, but when was the last time you researched the source of your new clients.
You might be better served by cultivating more referral sources. Know your true sources and costs to secure and keep clients. Bankers Advocate utilizes overseas Virtual Assistances to keep our costs way down.