Top 5 Things That Make Your Business Sellable!Dec 08, 2022
As a business attorney for over a decade, I have helped my legal clients sell dozens of businesses (I've honestly lost track of how many).
So many business owners dream of selling their business someday, but they usually have no idea what they need to have in place to get there. If this is you, there are some key things that you’ll need to have in place in order for your business to be sellable to a third party.
(Of course, if you want to exit your business without selling it, that’s totally possible too! I help business owners learn what options exist for them and find the best exit for their specific case. Check out these 4 Options To Exit Your Business.)
When trying to attract the right kind of buyer (you know, the one that will pay top dollar for a business that is worth it), there are 5 things your business absolutely must have.
Without them, your business isn’t sellable to a third party. Or, best case scenario, you end up selling your company for a lot less than it’s worth, to a buyer you aren’t entirely happy with.
So if you’re getting ready to sell or simply want to get these into a checklist now to get the best out of your company when selling, these are the 5 things that make your business sellable:
1. Have Your Contracts In Writing
The most important thing you need to have are written contracts for every aspect of your business.
(You may be thinking: what contracts, right?)
Think about it this way: a buyer is going to come in and they're going to take over your business. That means they are going to step into your shoes as the owner, so shift perspectives for a minute – what would you need, were you to take over a company right now?
There are many situations in which you might have to move on from your business, many of which don’t include you being present in the transition. Which means that the written documents you leave behind are the only pieces of information the buyer has to continue running the business.
What deals would they need to know about?
Here are the top ones every business needs to have:
- Customer contracts – they would want to know which projects were in the pipeline right now and which obligations you had to your clients that they will need to continue fulfilling.
- Supplier contracts – where do you get the things you need for your business? Every buyer will want to know the arrangements you have with each vendor or service provider, including insurance, brokers, widget or material providers, software providers, copy machine leases, etc.
- Employee contracts – what kind of contract does your team have? What is stipulated for their leave, payment, perks, bonuses? Are they consultants, independent contractors, or employees? What kind of work do they do for you? All of this should be in writing!
Now, if you’re thinking ‘yeah, I got that stuff’, fantastic! But that’s not all.
Having all these contracts in place is simply step #1 – the next step is going through them and making sure they are all gathered and organized. This means looking at the language in each contract to decide whether they can be assigned.
Before you panic-Google ‘what does assignment mean in contracts?’, here’s some reassurance: I’m known for empowering business owners with information so you can make the right decisions about your business.
Assignment, simply put, works like this: there are many different ways to structure a business sale, the main ones being
- The buyer can step right into your shoes and pick up where you left off
- The buyer is purchasing assets from your business, but not the whole package
In each case, the contracts will either remain under your company’s name or have to be reassigned to a different person/organization to continue being fulfilled. That is why we mean by assignment, and it’s a crucial part of the sale process that ensures there are no loose ends.
When selling, all contracts need to be assigned or allow for assignment. For example, if you’re leasing a physical space for your business operations, your landlord will require notice of your intent to assign, then they get to decide if they're comfortable with that assignment.
2. Protect Your Intellectual Property
The second biggest thing you need to make your business sellable is making sure your intellectual property is protected.
Depending on what you do in your business, its value may rely largely on proprietary elements you have created.
For instance, if you’re a coach and have created an amazing coaching program, if you’re an author and have published certain books, all those elements of your business are intellectual property and should be protected. The same applies to videos, music, or branding (the good will associated with your brand name is key!) – they all need to be protected.
And there are different ways to protect them depending on what they are and what jurisdiction you're in (intellectual property laws vary across countries and even types). That may mean:
- Federal registrations
- Adding copyright notices to items
- Filing for a copyright
- Filing for a patent
- Consulting with an intellectual property attorney to decide whether the cost of protecting certain elements is worth it for their value
Your buyers need legal assurance that this intellectual property is owned by you, so that when they buy your business, they will have the rights to use it, sell it, make it exclusively theirs or license it.
Making sure that your intellectual property is registered, the ownership is clear and it's protected is critical to creating value from which the buyer can benefit.
3. Get Your Financial Reports In Order
I know this one is never fun, but it’s crucial to a successful sale.
A lot of small business owners start their business keeping track of their finances on a spreadsheet, QuickBooks or other online DIY products. And while some eventually graduate to hiring accountants and bookkeepers as their business grows, they often still miss out on knowing how to tell the right story about their business through their financials.
Telling the right story means showing your buyers right away how profitable your products or services are and showing them exactly where all the money is coming in and out of your business.
That’s the peace of mind any smart buyer would require, and one that sellers are often unable to provide, because of things like:
- Having different offerings reported on your financial statements as just a top line revenue number
- Throwing all your expenses under the same category
- Grouping income into categories that work only for you but are unclear to anyone else
- Having expenses that are unaccounted for or fall under no category
With all those moving parts, there is no way for a buyer to come in and quickly see what’s profitable and what isn’t – which would help them decide what they want to change or keep the same once they buy your company based on their own expertise.
Your financials should always tell the story of your business in the way that is the most beneficial to you, and that’s where consultants like us come in.
4. Organization & Clarity
The fourth thing you need to make your business sellable is to make sure everything in your business is organized: from structure to paperwork.
Any legal red flag could potentially get a great buyer to walk away. Some of the most typical legal red flags are:
- Pending lawsuits
- Insurance claims
- Customer disputes or threats
These are all things you should either know how to narrate properly to a potential buyer OR solve before you start marketing your business for sale. Because a savvy buyer is going to have their attorney come in and do due diligence on it, and you don’t want them finding any red flags that could get them to walk away.
Making sure your business story is clear and organized will get you closer to the sale deal your company deserves!
5. Removing Yourself From The Equation
The last – but VERY important – thing you need in your business to make it appealing to any potential buyer, is proof that it can run without you. Showing your buyers that the company will still be profitable and work like a well-oiled machine once you hand it over to them is crucial for any sale to go through.
When I work with clients on exit strategy planning sessions, the first thing we talk about is what they do as the business owner in the day-to-day of their company. Then, we make a plan to pull them out from those day to day responsibilities so they can work on instead of in their business.
After doing that, it might be the case that you need to hire team members to take over that work or it could be delegating tasks to other employees. You may get to a point when you're growing your business (before you sell) that you actually hire a new CEO.
If you run a one-woman (or man) business, what you need to consider are your systems and processes. The more detailed systems, processes, and automations you can leave behind when moving on from the business, the easier the transition will be. Plus, they will free up your time now while you’re still running it.
To recap, the five things you need to make your business sellable are:
- Super solid written contracts that can be assigned
- Legally protected intellectual property of anything you’ve created
- Financial reports that tell the right story about your business
- No red flags and an organized structure
- A system for your company to run profitably and successfully without you
If you need any more guidance or are thinking about what exit strategy options might be right for you (or what would it take to make your business sellable as it is now), book a free call with me and I’ll help you kickstart the process.
You also need to be able to clearly state exactly what your role looks like within your business so that someone else can take over seamlessly. You need to communicate what they need to bring to the table or who they need to hire for your business to continue being as profitable (or more) to them than it was when you were running it.