Selling a Business: How To Prepare Optimally

The art of preparation

You have decided: it is time to sell your business. Perhaps tomorrow, perhaps in two years. But the decision has been made, and now the real work begins.

Because selling a business is not simply a matter of putting up a 'for sale' sign and waiting for a buyer to knock. The most successful sales transactions are months, sometimes years, in preparation. Entrepreneurs who understand this achieve significantly better sale prices than those who rush.

In this article, I will take you through the steps you need to take to optimally prepare your business for sale.

Begin with the end in mind

The most effective preparation begins with the end in mind. What is a buyer looking for? Understand that, and you know what you need to work on.

A buyer seeks certainty. Certainty about income, about customers, about employees, about processes. The fewer uncertainties, the more attractive your business.

A buyer seeks growth potential. Not just what your business is now, but what it could become. Show that there is room for growth, for improvement, for value creation.

A buyer seeks transferability. Can the business function without you? If the value is in your head, in your relationships, in your presence, then the business is difficult to sell.

With these three principles in mind, you can begin your preparation.

Financial housekeeping

The first pillar is your financial administration. This is where buyers look first, and first impressions count.

Ensure that your bookkeeping is up-to-date and accurate. No backlogs, no unexplained items, no creative constructions. If you are currently still taking liberties with the rules – and many entrepreneurs do – this is the time to clear the decks.

Separate private and business. The company car that you also use privately, the phone bill paid by the business, the family members on the payroll without actually working – it all needs to be normalised. Buyers want to see the true costs, not your tax-optimised version.

Document one-off items. Every deviation from the normal pattern must be explained. An exceptionally expensive repair, a one-off large order, a legal dispute that incurred costs. Buyers assume that everything returns to normal unless you explain otherwise.

The operational foundation

The second pillar is how your business runs. Here you make the difference between a business that belongs to you, and a business that works without you.

Document your processes. How are customers served? How are products made? How are problems solved? If this is only in your head, that is a problem. Write it down, create manuals, create transferable knowledge.

Strengthen your team. A strong management team that can run the business in your absence is worth its weight in gold. Invest in your key people, give them responsibility, make them part of the continuity.

Reduce dependencies. Dependent on one large customer? On one crucial supplier? On one irreplaceable employee? These are risks that buyers see and for which they ask for a discount. Work on diversification.

The legal basis

The third pillar is the legal side. This is where most skeletons in the closet are discovered – better to find and clear them yourself.

Contracts in order. Are all customer contracts recorded in writing? Do they contain change of control clauses? What about supplier contracts, employment contracts, licences?

Intellectual property. Are your trademarks registered? Do you have the rights to the software you use or have developed? Are there patents that need to be protected?

Compliance. Do you comply with all relevant laws and regulations? Privacy, occupational health and safety (Arbowet), industry-specific requirements? A buyer does not want to buy a business with hidden compliance problems.

The timeline

How long does good preparation take? It depends on your starting position, but count on at least one to two years for optimal preparation.

In the first year, you work on the basics. Finances in order, processes documented, team strengthened. This is also the period to show your figures: stable or growing turnover, healthy margins, controlled costs.

In the second year, you optimise. The final dependencies are reduced, growth opportunities are clearly presented, transferability is demonstrated. You now have two years of 'clean' figures to show.

Can you go faster? Yes, but it costs money. Every lack of preparation translates into a lower price or a more difficult negotiation.

The advisors

A business sale is too complex to do alone. You need a team.

An accountant to prepare your figures and explain them to the buyer. A business real estate agent or M&A advisor to guide the sales process and find buyers. A solicitor to draft the contracts and protect your interests. Possibly a tax specialist to structure the deal in a tax-efficient way.

This costs money, certainly. But the right advisors earn back their fee in a better deal. Skimping on guidance is penny wise, pound foolish.

Start now

The best time to start preparing was yesterday. The second-best time is now.

Even if you are not yet sure if or when you want to sell, a business ready for sale is a better business. The discipline required to sell – good administration, documented processes, a strong team – also makes your business more valuable in the meantime.

Read more about selling a business? Or advice regarding your situation?