You may have spent years building a profitable business, but selling it requires you to look at that business differently. Buyers will not simply look at your revenue or the work you have put into the company. They will examine your business records, customer relationships, employees, operations and how dependent the business is on you. If you are learning how to sell a business with $1 million to $25 million in revenue, knowing what buyers will question before you go to market can give you time to address potential concerns.
Rather than waiting until you are ready to sell, you can begin identifying risks, strengthening your operations and understanding how a buyer may value your company years before a transaction takes place. Murphy Business Sales can help you prepare for what comes next, giving you time to address potential concerns before you go to market.
The goal is not simply to get your business sold. It is to enter the process prepared, understand what buyers are looking for and avoid preventable surprises when the stakes are highest.
Start Preparing Before You Are Ready to Sell
One of the biggest mistakes you can make when preparing to sell a business is waiting until you are ready to go to market. Customer concentration, owner dependence, family members in key positions and financial reporting concerns can take time to address.
Tony Samples, CMAI, CM&AP, M&AMI, M&A Advisor, and Merger & Acquisition Master Intermediary, sees this preparation as one of the most important parts of the process. He recommends that owners start the conversation three to four years before they plan to sell because a deeper review can uncover problems that cannot be fixed overnight. “We do tell business owners to please contact us 3 or 4 years out from the time frame that they would like to sell their business, because when we do a deep dive into their business, we will find issues sometimes, most of the time that need to be corrected that simply can’t be corrected in a day.”
That extra time gives you the opportunity to make changes while you still have control over the business. For example, if one or two customers account for a significant portion of your revenue, a buyer may see that concentration as a risk even if those relationships have been strong for years. Identifying the issue early gives you time to diversify your customer base rather than trying to explain the risk during negotiations.
Understand Your Numbers From a Buyer’s Perspective
Knowing your revenue and profitability is only the beginning. Buyers and their financing sources will examine your financials closely, so you need to understand how they will evaluate your company.
Before you enter the market, John B. Charleston, III, MBA, CM&AP, Principal, Business Broker, and M&A Advisor, recommends looking at your financials from the other side of the transaction. “For some business owners, they’re running their business on a day to day basis. They understand at a high level their financials. But do you really understand your financials and how a buyer or a banker will evaluate your business and your financials? And it’s important for you to know the other side and the key constituencies that will be involved in the transaction.”
That means considering not only the buyer, but also the bank, SBA lender or other funding source that may be involved. Charleston explains that the Murphy team conducts a detailed review of the business, looking at monthly results, year to date performance, 12-month performance and three year forecasts. Doing that work in advance can help identify potential issues before they surface during due diligence and reduce the risk of a buyer attempting to renegotiate the terms of the deal later.
Make Sure Your Business Can Run Without You
Your involvement may have been essential to building the company, but it can become a concern when you are trying to transfer ownership. If employees rely on you for daily decisions, important relationships exist only because of you or operations slow down when you step away, a buyer may question how easily the business can continue without you.
Phil Eleson, MBA, CM&AP, CBI, CEPA, M&A Advisor, and Certified Exit Planning Advisor, has a simple way for owners to test this: step away for 30 days. “If they’re able to go away for 30 days and come back and nothing’s changed, everything’s great, then they’ve built a really nice company that is not dependent on them as the owner and is likely sellable. But this is an early question that we ask before we dive too deep into the process with them.”
The 30-day test gives you more than a measure of sale readiness. It can show you where your business needs stronger systems, clearer processes or additional key personnel. Building those areas now can make the eventual transition easier for you and the person who takes over the business.
Look at Your Business Through a Buyer’s Eyes
Once you start viewing your business the way a buyer will, potential questions become easier to identify. Will key employees stay? Is revenue dependent on a small number of customers? Are your financial records clear and consistent? Can the business operate without you?
These questions do not necessarily mean there is a problem with your business. They show you where a buyer may need additional information or where you may have an opportunity to strengthen the company before going to market. Customer concentration, family members in key positions, personal expenses running through the business and reporting issues are easier to address when you have time to work through them.
That is why preparation several years before a sale can matter. Instead of reacting to concerns after a buyer raises them, you can identify them yourself and take steps to address them while you still have time.
Choose an Advisor Who Understands Your Market
Selling a business in the $1 million to $25 million range can require a level of business and transaction expertise that goes beyond simply connecting you with a buyer. You need an advisor who understands the size and complexity of your business and can help you prepare before you enter the market.
Murphy Business North Fulton County focuses on Premium Main Street and lower middle market businesses. John Charleston, Tony Samples, and Phil Eleson bring different areas of experience to the process, including business analysis, transaction experience, business ownership and exit planning. That gives you multiple perspectives as you prepare your company, evaluate buyers and navigate the transaction.
If you are considering selling your business in Alpharetta, North Fulton County, the greater Atlanta area, or beyond, you do not have to wait until you are ready to sell to start preparing. You can work with the Murphy team to understand what buyers may see in your business and identify the steps you can take now to prepare for what comes next.
To start the conversation about your business sale and your next chapter, contact Murphy Business North Fulton County.