Tips to Consider When Preparing to Sell Your Small Retail Business

According to a 2012 study by the International Business Broker Association (IBBA) and M&A Source, over half of all businesses for sale sold within six months. For businesses in the lower middle market, however, it took anywhere from eight months to two years to sell. This time frame can frustrate entrepreneurs who have been holding onto a retail business through the recession and want to cash out now. If you’re looking to sell your retail company and retire — the most common reason for present business sales, according to the study— minimize risk to attract a buyer quickly.

Understand Why Deals Fall Apart and Prepare for a Quick Sale

The IBBA and M&A Source study lists top reasons why business deals fall through:

• unrealistic expectations (29 percent)
• poor buyer preparation (18 percent)
• poor seller preparation (16 percent)
• unrealistic demands on buyer (10 percent)
• lack of corporate structure and personality conflicts (6 percent each)

Make your business sales-ready and attract the right buyers by taking steps to minimize these risks by doing the following:

• Organize business financial documents and tend to any loose ends (i.e., outstanding bills).
• Have your accountant prepare a balance sheet, income statement and valuation report going back at least three years.
• Gather all business legal information including business bylaws, articles of incorporation, formation documents, zoning requirements and permits.
• Organize business intelligence and operating information including your business plan, strategic planning documents, daily operating procedures, list of employees and correlating job descriptions. Include anything a potential buyer would need to gain an accurate understanding of business operations.

Alleviate Common Risks

Risky areas that can unnerve buyers include:

• Finances: Disorganized finances, risky investments, missing receipts or a history of poor financial decisions can turn off buyers. Track down missing financial records and receipts, automate bill paying, seek an accountant’s help and tackle any other outstanding issues that would give buyers pause, such as any prior breach of credit or financial information. To create an incentive for buyers, demonstrate that you have added another way to protect your company’s credit through LifeLock, which provides identity theft services.
• Technology: Out-of-date technology can leave your business vulnerable to hackers and represents an immediate investment for the seller. Either upgrade your technology before the sale or discount your asking price so the buyer can invest in needed equipment.
• Market: A strong business has a diverse customer base with a strong relationship history. A weak business has few customers drawn from one area with no relationship. As you prepare to sell, cultivate your relationships to make your business more attractive to potential buyers.
• Operations: Institutional knowledge can make the difference between a business that succeeds through the transition and one that fails to get off the ground. If you can pass on institutional knowledge and a strong corporate structure, you’ll have an easier time finding a buyer.
  

  Think Through Potential Questions from Buyers

  Organizing your business information should bring any remaining vulnerable areas to light so you can address them. Before you advertise your business, seek feedback from partners, friends or family members. Have them review the financial, legal and general business information you just organized. When they have questions or do not understand certain areas, take steps to clarify the information. This will help you attract better buyers.

  Photo Courtesy of SocialMonsters.org with permission to use.