Is Your Business Ready to Sell? 7 Things Every Business Owner Should Know

Oct 2

4 min read

Most business owners don’t wake up one morning and suddenly decide to sell their company.

Usually, the thought develops over time.

Maybe you’re ready to retire. Maybe you’re tired of the day-to-day responsibility. Perhaps you want to pursue another opportunity, or you simply want to understand what the business you’ve spent years building might be worth.

Whatever the reason, one of the first questions I hear from business owners is:

“How do I know if my business is actually ready to sell?”

After years of working with business owners through the sale process, I can tell you that getting a business ready for market is about much more than putting a price on it.

Here are seven areas worth looking at before you decide to sell.

1. Can You Clearly Show What the Business Earns?

Buyers aren't simply buying revenue. They are buying the future cash flow of the business.

For many privately held businesses, that means looking beyond the net income shown on the tax return or profit and loss statement.

Owner compensation, certain discretionary expenses, one-time expenses and other legitimate adjustments may need to be considered when determining the true earning power of the business.

This is commonly referred to as Seller’s Discretionary Earnings, or SDE.

Clean, organized financial records make this process much easier and can give buyers greater confidence in the numbers.

2. Does the Business Depend Too Heavily on You?

This is one of the most important questions a business owner can ask.

If you disappeared for 30 days, what would happen?

A business that can operate without the owner handling every customer, employee issue, estimate and operational decision is generally easier for a buyer to take over.

That doesn't mean you have to remove yourself completely before selling.

But documented procedures, dependable employees and systems that can be transferred to a new owner can make a significant difference.

3. Are Your Employees Likely to Stay?

For many service businesses, the workforce is one of the company's most valuable assets.

Buyers will want to understand who the key employees are, how long they have been with the company, what they do and whether the business depends heavily on one particular person.

If you have good employees, work on keeping them.

A stable team can help provide continuity during an ownership transition.

4. Is Your Revenue Concentrated?

Imagine that one customer represents 40% of your annual revenue.

A buyer is going to ask an obvious question:

What happens if that customer leaves?

Customer concentration can increase the perceived risk of an acquisition.

A diversified customer base, recurring revenue, long-term relationships and a steady history of sales can all help demonstrate the sustainability of the business.

5. Are Your Records, Licenses and Agreements in Order?

Before a buyer gets serious, they are going to perform due diligence.

Depending on the type of business, that may include reviewing:

Tax returns and financial statements
Bank statements
Payroll records
Customer and vendor information
Equipment and asset lists
Leases
Licenses and permits
Franchise or territory agreements
Employee information
Contracts and insurance

You don't need to have every document sitting in a perfect binder before speaking with a business broker.

But identifying missing or outdated information early can prevent unnecessary delays later.

6. Do You Know What Your Business Is Really Worth?

This is where many owners get into trouble.

The value of a business isn't necessarily what you need for retirement, what you invested in it or what another business down the street is asking.

Buyers and lenders look at earnings, risk, industry, growth, assets, financing feasibility and comparable market activity.

That's why understanding value before going to market can be so useful.

It allows you to make an informed decision about whether selling now makes sense—or whether spending another year improving the business could put you in a stronger position.

7. Are You Personally Ready to Sell?

This question gets overlooked.

Selling a business you've built over 10, 20 or 30 years isn't purely a financial transaction.

Think about what happens after closing.

Do you want to retire completely? Stay involved for a transition period? Start another company? Travel? Spend more time with family?

Knowing what you want from the next chapter can make many of the decisions during the sale process easier.

You Don't Have to Be Ready to Sell Today

One of the biggest misconceptions about speaking with a business broker is that you need to be ready to list your business immediately.

You don't.

In fact, some of the most productive conversations happen 12 to 24 months before an owner intends to sell.

That gives you time to understand the value of the business, identify potential problems and make improvements while you still have control over the outcome.

If selling your business is somewhere on the horizon, start by becoming informed.

Download my free Owner’s Guide to Selling a Business for an overview of the process, what buyers look for and the steps you can take before going to market.

Business Owners guide to selling a business

DOWNLOAD THE FREE GUIDE

If you're further along and want to understand the potential value and marketability of your company, Atlantic Business Brokers also offers a Broker’s Opinion of Value and a more comprehensive Business Value & Marketability Review.

LEARN ABOUT BUSINESS VALUATION OPTIONS

And if you're considering selling a business in New Jersey, Pennsylvania or Delaware and simply want to discuss your options, you can request a confidential consultation.

REQUEST A CONFIDENTIAL CONSULTATION

Ready to Talk About Your Business?

If you're considering selling your business in New Jersey, Pennsylvania or Delaware—or simply want to understand what your business may be worth—I’m happy to have a confidential, no-pressure conversation about your options.