Preparing to Sell Your Business: Due Diligence

Retirement, health issues, and other life circumstances can necessitate the sale of a business. When selling small businesses, obtaining the maximum selling price requires the owner to take specific steps and plan for certain contingencies. If the sale of your small business is imminent, performing due diligence improves the odds of receiving fair compensation.

Consider Hiring a Business Broker

Due to potentially adverse outcomes, many business owners are reluctant to disclose to their staff and the public that they are considering selling the business. In cases like this, business brokers like CGK Business Sales assist by protecting the owner’s identity and allowing them to continue to focus on their business. The broker concentrates on marketing and facilitating the sale. 

After an offer for the business has been accepted, most buyers will conduct an in-depth analysis of all aspects of the business’s affairs, known as due diligence. Due diligence, included with the 60-day letter of intent, is signed after agreeing to details. Typical due diligence documents include reports about the company’s legal, financial, and sales and marketing relationships. A qualified business broker helps facilitate this paperwork and keeps the transaction proceeding smoothly.

Ensure the Financials are in Order

Few situations can scare off prospective buyers quite like sloppy bookkeeping. Accurate accounting shows everyone the business payables and receivables and is also a powerful tool for controlling costs and developing and sticking to a realistic budget. Inaccurate business financial information increases the difficulty of providing a precise valuation and could cost a seller significant undeclared deductible expenses at tax time.

Enlisting the services of an experienced business accountant to go through the company ledgers before placing the company on the market helps eliminate any red flags that may impact an offer from a prospective buyer or, worse, give them cause to back out of a deal altogether. An accountant’s services are also helpful when filing business taxes or in the event of an audit.

Invest in a Realistic Valuation

A business valuation demonstrates your company’s financial health in addition to spotlighting business inefficiencies causing a drain on your bottom line. When corporate valuation professionals evaluate a company, they examine projected profits, cash flow, and business assets and liabilities. This process aims to determine any business threats along with growth opportunities. Fees for a business valuation range from $3000 to $8000, and the information uncovered is crucial to setting an accurate business price. 

Completing an accurate valuation before putting the company on the market puts the owner in a comfortable position by having essential information to negotiate fair compensation while attracting attention from others who see the company’s growth potential.

Make Sure You’re Selling at the Right Time

Knowing the right time to sell a business is critical to receiving the total asking price, but many business owners are unsure of the perfect time to sell. Ideally, the prime time to put the company on the market is when things are going well with low expenses and a healthy bottom line. If your local municipality is experiencing an influx of new residents and the economy in the community is strong, it may be time to consider selling. 

Generally, three years of financial growth provide evidence a business is in good shape and an attractive investment opportunity for potential buyers in the current market.