How to Prepare to Sell Your Business
Aug 05, 2024In Episode 618, Shannon delves into the crucial process of preparing to sell your business. As a CPA and experienced business owner, Shannon offers clear, practical advice to guide entrepreneurs through a potentially stressful yet rewarding phase.
Selling a business often involves unexpected paperwork and last-minute demands similar to closing on a home. Shannon observed these emotional highs and lows firsthand when helping her husband sell his business. To mitigate stress, it’s crucial to be well-prepared.
A key step is self-assessment: “Would you buy your business?” If your answer is no, identify the gaps preventing your business from being truly scalable. This can highlight necessary improvements like hiring new talent, documenting processes, or delegating tasks.
Shannon outlines three essential tactical steps to prepare for selling your business:
1. **Document Your Standard Operating Procedures (SOPs):** Begin by identifying major processes—client onboarding, sales and marketing, fulfillment, etc. Use methods like voice notes transcribed into written documents or tools like Loom to illustrate tasks visually. The goal is to create a comprehensive training library that ensures business continuity in your absence.
2. **Build a Contingency Plan:** Different from an exit plan, a contingency plan prepares your business for unforeseen circumstances. For instance, if Shannon were stranded in Costa Rica without internet, what’s the fallback strategy? Ensure every team member has a coverage plan for their role, and all processes are accessible to maintain business operations without disruption.
3. **Tighten Up Your Financials:** Up-to-date financial records are crucial. Buyers expect accurate, readily available books, often necessitating accrual accounting over cash basis accounting to truly gauge the business’s value. A rock-solid bookkeeper or a fractional CFO can be invaluable here. Shannon offers an interesting exercise: book a power session where she role-plays as a nitpicky investor, scrutinizing your financials to prepare you for real investor inquiries.
When selling a business, intangibles like your intellectual property, client lists, and operational procedures add considerable value. Known as goodwill, these elements are often difficult to quantify but essential for a lucrative sale. Understanding your intangibles and effectively communicating their worth can optimize your final sale price.
Shannon suggests several actionable steps for entrepreneurs: engage your team in documenting and updating SOPs regularly, consult with professionals to fine-tune your business’s financial health and operational readiness, and prepare robust contingency and disaster recovery plans to ensure business continuity.
Shannon wraps up the episode with a metaphor: think of these preparations as remodeling your bathroom before selling your house—they might involve upfront effort but yield a much higher return. If you’re contemplating selling your business, take Shannon’s tips to heart. For tailored advice, consider reaching out through her "CFO on Demand" program for personalized guidance.
What you'll hear in this episode:
05:29 SOP documentation and training library impact business sale.
08:26 Create contingency plans for Internet outages.
11:51 Expert business analysis and preparation for investors.
If you like this episode, check out:
This Could Be the Most Expensive Sales Mistake You Make
Stop Doing This to Your Customers
How to Integrate Business Development Into Habits
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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.
