As with selling a home, the more time you spend getting organized and cleaning up eyesores, the more likely you'll be to sell your business without a hitch. (Likewise, should you keep the business in the family, the easier a time your successor will have picking up where you left off.)
"Think about potential deal-killers," Hughes says. "Before you put the business on the market, evaluate it with a broker, an accountant or an attorney and try to fix any areas that may present problems."
For starters, Garson advises, your financial records and tax returns from the last three to five years must be crystal clear, and your contracts with customers, vendors and employees must be current. Some other critical ducks to get in a row before courting buyers:
Financials. It's not enough to have your P&L statements and balance sheets shipshape, says Sun Exit Advisors' Thomas. "What's even more important is a cash flow report--how much money you have in the bank, and what you anticipate coming in the next week to 60 days," he explains.
Expenses. If you've been running personal expenses through the business, time to clean up your act, advises Generational Equity's Mackin. "We can talk about the legalities all day, but what happens is it depletes your business's value," he explains.
Employee classification. Incorrectly classifying employees as independent contractors isn't just a red flag for the IRS; it could scare off potential buyers, Hughes says. If you're unsure whether your people are employees or independent contractors, check with an employment attorney.
Operations. If you haven't empowered any of your staff to run the show should you miss a month of work, now's the time, Thomas says. Nothing's more dangerous to a business than an operations manual that only exists in the owner's head.
Employee turnover. The last thing you want is for key employees to leave while you're growing the company or negotiating a sale, Thomas says. Incentives like bonuses and stock options can help keep employees loyal.
Lease. "Make sure you have a good relationship with your landlord, especially if it's a retail business or restaurant that's reliant on a particular location," says Hughes, who's seen deals implode when a landlord wouldn't let a buyer assume a lease.
Inventory. If you have too much product, Hughes suggests liquidating it or writing it off and then cleaning up the warehouse--before buyers visit.
Facility. Clean, organize and spruce up all your physical locations. "Your books can be spic and span, but if a person walks into your place and it gives them the creeps, it lowers their trust," Thomas says.
Negotiating Like a Pro
Another surefire way to kill a sale is to get greedy during the negotiations.
"One of the classic pitfalls is going for more money or more anything because you think you can," says Avi Karnani, co-founder of Thrive, a free personal finance website that launched in 2008 and sold to LendingTree in 2009.
To avoid this trap, Karnani suggests identifying the offer terms you need to have (say, $10 million), want to have (autonomy within the parent company), and that would be nice to have (a corner office).
"If you don't spend time in the beginning making it clear what your needs, wants and nice-to-haves are, one of your stakeholders is going to say 'I really think we can get $11 million,'" he says. "You don't want one person to become the holdout."
You also don't want to sell to the first prospect that comes along.
"You need to talk to a number of buyers," Garson says. "You want to create a lot of interest in the company."
When it comes to choosing a buyer, "it's not just about the money," Mackin says. "It's about the interaction and the trust factor you have with the buyer. Eight times out of 10, my clients sell for what is not the best offer."
Troyer can relate. She and Farentinos received five offers on MailBoxes4Less.com. They didn't go with the buyer who offered the largest sum; they went with the one who paid in cash and had the best business pedigree.
"You'd better believe in the person you're selling to because you'll be working with them during the transition," Troyer says. And depending on your contract terms, some of the sales proceeds could be tied to the business remaining successful.
Keeping Your Eyes on the Prize
Exiting your company may feel more like a marathon than a sprint. In a good economy, experts say selling a business takes an average of nine months. The due diligence alone--during which the seller combs through all your documentation ("it's almost like an IRS audit or a deposition," Troyer says)--takes at least six weeks.
While courting buyers, it's imperative that you stick to business as usual.
"It's crucial that your sales numbers stay up and that your expense numbers stay down," Troyer says.
It's also crucial that your best employees stay focused on keeping the company successful. Too often, Garson says, owners will pull their rock stars from their posts and have them make the requisite presentations to potential buyers.
"It's a terrible thing to do," he says. Instead, he suggests, tap your investors or PR people to do these dog-and-pony shows.
"You have to continue to run the company as if nothing's going to change," Mackin says. "Buyers will want to see that you're running the business well. That's where you get the difference between selling the business and selling it at a premium price."
As for those discouraged by poor market conditions, "unless you have to sell, don't sell when the table's tilted against you," Garson says. "Work on building your business, making it stronger and positioning yourself for the future. You only get to sell this business once, so you might as well do it right."