Navigating the Pre-Sale Process: Essential Steps for Business Owners like Bob

Date February 26, 2024
Authors Keith A. Veres

Despite the weighty decisions involved in selling a business, there always seems to be something to laugh about with business owners as they navigate one of the most critical financial decisions of their lives.

Picture this: Bob, a business owner who decided to sell his company, Bob’s Bountiful Balloons. After years of inflating sales, Bob was ready to let someone else take the helm. He thought selling his business would be as easy as selling balloons at the county fair. But he soon discovered that the pre-sale process was more complex than flying a balloon in a windstorm. He was going to need the assistance of a seasoned transaction advisory team if he wanted to increase his odds of a successful exit and succession.

Bob consulted HBK Transaction Advisory Services (TAS) and we shared the essential steps in the pre-sale process that he, indeed any business owner, should consider before floating their company on the market. If followed correctly, these steps can elevate the sale price, improve the chances of negotiating the best terms and conditions of the transaction, and ensure a smooth landing.

Understand your business’s true value.

First, Bob needed to understand the actual value of his business. Like many owners, Bob’s initial estimate was based on a mix of pride, annual profits, stories he heard from other business owners, and a magic number he’d dreamed up. But the true value of a business is based not only on current earnings but on its potential for growth, brand value, and the strength of its customer relationships, among many issues. Engaging a professional to conduct a thorough valuation can reveal your business’s real worth, thus helping you and your transition team set a realistic price. You will also gain valuable information about what truly drives or detracts from the value of your business.

Get your financial house in order.

Bob quickly realized that his method of keeping receipts in a shoebox and calling it “bookkeeping” wouldn’t fly with prospective buyers. Cleaning up financial records and ensuring all financial statements are accurate, up to date, and professionally prepared, he learned, was crucial. That’s transparency, and it builds trust among potential buyers and can significantly speed up the due-diligence process. It’s important to keep in mind that the sale process, even when it goes smoothly, can take 6 to 18 months from start to finish. Potential buyers will want new trailing 12-month financial statements as each month passes. Bob needed a reliable month-end closing process to meet these demands from buyers if he wanted them to stay interested.

Address legal issues.

Bob also discovered a few cobwebs in his legal closet. Ensuring that all legal documents, from incorporation papers to employment agreements, were in order and any potential legal issues were resolved was essential. It’s like tidying up your house before guests arrive; you don’t want them tripping over skeletons that have wandered from your closet. We also discovered that Bob’s lease allowed his landlords to refuse to remove his personal guarantees if they were not comfortable with the buyer. Discussing the terms of your lease with your attorney and landlords can eliminate unnecessary hot air in the selling process later on.

Improve business operations and efficiency.

Looking at his operations, Bob realized that some of his processes were as outdated as a hot air balloon in the age of drones. Streamlining operations, investing in technology, and improving efficiency are likely to make your business substantially more attractive to buyers. It’s about showing that your business can run smoothly and profitably, even without you at the helm.

Plan for the transition.

Finally, Bob had to consider his transition plan. He dreamt of retiring to a tropical island, but he also wanted to ensure his team was taken care of and that the balloon business would continue to soar. Having a solid plan for transitioning your business to new ownership can ease concerns and make your business more appealing. This is where a seasoned transition team working with the business owner can be worth their weight in gold.

Through this journey, Bob learned that selling a business is more than just floating a “For Sale” sign and waiting for buyers to drift in. It requires preparation, understanding, and sometimes a bit of elbow grease to polish your business until it shines.

As the national director of HBK Transaction Advisory Services, I’ve worked with many Bobs over the years, each with their unique business and dream of what comes next. The key takeaway? Preparation is everything. By taking these essential steps in the pre-sale process, you can help ensure that your business sale soars.

And remember, while the process may seem daunting, with the right team and a bit of humor, you can navigate the pre-sale winds of selling your business with ease and even enjoy the ride. After all, it’s not every day you get to pass on your legacy as you pursue your next adventure.

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