Manage to Sell
As the owner of a business, it is a good practice to ask: “If I were thinking of buying this business, what would keep me from closing?” Be objective and play the role of an investor who is sophisticated and looking for a business interest to purchase. If you were that person, knowing what you know about your business, would you buy it? If not, why not? More importantly, what can be done to correct the problems that prevent your business interest from being marketable? Do your competitors have the same problems?
The more you prepare to sell your business, the more it will be worth when the business interest transfers. This perspective provides a unique method for analyzing your business. Manage your business to be ready for sale at the highest value.
When you offer an item for sale, you clean it up and make the item look as good as possible. You now do the things that before seemed not to be important, such as cleaning or deferred maintenance. Of course, this is not good management – it would have been better to constantly keep the item clean or not to defer maintenance. Deferring maintenance frequently causes problems later. When a crisis occurs, it is the items subjected to deferred maintenance that malfunction and cause the crisis level to increase.
A potential sophisticated buyer doing a diligence review of the business will investigate business entity status (including minutes of meetings and decisions as well as compliance with entity registration requirements), owner agreements (including management agreements, buy-sell agreements, and voting agreements), regulatory matters (including having in place necessary permits, licenses, and other filings), facilities (including all leases and use agreements), employment issues (including compliance with Fair Labor Standards Act categories, employee manual, employment agreements, confidentiality agreements, noncompete agreements, personnel files, compensation histories, and benefits plans with related records), the balance sheet (including inventory of assets, documentation of title, records of encumbrances, and intellectual property), insurance (including nature of coverage and evaluation of risks not insured), financial (including accounting, loan agreements, and management reports), tax (including federal income tax, state income tax, use or sales tax, and other taxes such as property tax), environmental status (including past surveys done and consent decrees), and legal issues (including existing and contemplated contracts.
After the diligence investigation, and most important for the buyer, is the projected operation of the business after closing. Will the buyer have to keep the services of the owner to have the business operate properly after the sale? If so, the buyer will pay less for the business.
Manage the business for sale for maximum value by working on creating non-owner management so owner-managers are not essential to the business and completing in a timely fashion the management functions of maintaining the business. Conduct your own diligence investigation on a regular basis. This is managing for the sale. By the way, there is nothing that says you have to sell, just because you manage for the sale.