If you’re trying to sell your business, one of the most effective things you can do is something that might sound counterintuitive – but hear us out. You need to make yourself redundant.
We don’t mean redundant in the sense of severance packages, and collecting all your belongings into a cardboard box. We mean that you need to make sure your business can operate effectively even when you aren’t at the helm.
For most business owners, this is much easier said than done. If you’ve started a business from scratch, it’s easy to get emotionally attached to it. You might be reluctant to hand over control of a certain department of the business which you’ve put a lot of energy into, or an important client relationship that you’ve nurtured from the beginning.
Think Like a Business Buyer
But if you’re serious about selling, you need a different mindset. Everything in your business needs to be approachable and understandable for a new owner stepping into your shoes. That means the staff you’ve brought in need to be able to run it effectively without your guidance. This especially applies to your Heads of Sales, Marketing, Finance and so on – if you’ve surrounded yourself with the right people and trained them effectively, you should be able to step away without anything catching fire.
A business which is overly reliant on its owner is not an attractive proposition for a buyer. The perceived level of risk and uncertainty is higher, and this can also make it harder to get funding from banks. There’s a reason banks love the stability and predictability of franchising when it comes to business loans – they’re built on replicable systems, not on personalities.
If you aren’t aware how reliant your business is on your input as the owner, then it’s likely that any potential buyers might also not realise this until the later stages of due diligence. This could mean you put a lot of time and money into nurturing a deal that falls apart at the last minute, accruing fees for lawyers and accountants in the process.
The Solution? The ‘Holiday’ Test
To avoid this situation, you need some self-awareness. If you know you might want to sell your business at some point in the near or distant future, we’ve got a suggestion for how you can smell-check your business’ ability to run without you. It’s simple, but effective: the ‘holiday’ test.
Take a step back from the day-to-day operations of the business. Book yourself an extended trip - ideally somewhere remote – for a couple of weeks. Tell your team that you won’t be contactable except in a real emergency, and make sure they’ve got everything they need from you in the weeks and months leading up to it. Communication is key here.
All you need to do then is sit back and see how things run without you. If you return to a hundred emails asking where files are, or how to respond to a disgruntled client, then you know there’s work to be done. If you see your COO or CFO stepping in to make important decisions, then you know your business could be effectively transferred to a new owner without anything breaking.
Of course that doesn’t mean your input isn’t valuable, and it definitely doesn’t mean a new owner won’t need to bring anything to the table. They’ll need leadership experience and people skills to successfully step into an operation which already has moving pieces. But they – and you – should be more of a navigator providing the direction of travel than someone directly steering the ship.
How to Prepare Your Business for Sale
Making yourself redundant isn’t the only thing you can do to make your business more appealing to buyers. Arguably the most important thing you can do is to prepare accurate, transparent financial records which you’re able to share with interested parties. Your profit and loss statements, balance sheets, and cash flow statements will all need to be in good shape, and above all you’ll need an accurate valuation that aligns with market expectations.
Tip: For a breakdown of the different valuation methods used to value a business, read our article How do you value a business? The methods and formulas explained. You can also explore BusinessesForSale.com’s powerful (and free!) valuation tool, ValueRight.
On the legal side of things, you’ll need to prepare key documents such as employee contracts, supplier agreements, leases, intellectual property documentation and compliance records. Having these to hand from the beginning will speed up the due diligence process and let you build buyer confidence.
You may want to consider converting sole proprietorships into limited companies, or simplifying shareholder structures, to make the legal structure of your business more appealing to buyers. Documenting Standard Operating Procedures (SOPs) can also help improve its operational transparency.
If you haven’t already done so, recruiting the services of an experienced business broker can help ensure there aren’t any key steps you’ve missed, and increase your reach within the market. Brokers can also provide a useful sounding board during the selling process, which can sometimes be a long and tiring one – especially if you’re the sole owner.
Tipping the Scales for a Sale
None of these things can guarantee a sale. But if you can demonstrate to a buyer that your business is able to run efficiently without you overseeing it, that its staff are reliable and take the initiative, that it is financially, legally and operationally transparent – you’ll massively increase your odds of a successful exit.
If you haven’t done so already, you can list your business for sale on BusinessesForSale.com, and begin an exciting new chapter in your entrepreneurial journey today. We’re here to help you make your next move with confidence.