You should create an operations manual
Home > Selling a Business
Okay, let’s assume that you have decided to at least take the first few steps to actually selling your business.
Before you even think about placing your business for sale, there are some things you should do first. The first thing you have to do is to gather information about the business.
Click each box to explore the key takeaways that can help you prepare, strengthen, and sell with confidence.
If you’re half way through the current year, make sure you have last year’s figures and tax returns, and also year-to-date figures. Make all of your financial statements presentable. It will pay in the long run to get outside professional help, if necessary, to put the statements in order.
You want to present the business well “on paper.” As you will see later, pricing a small business usually is based on cash flow. This includes the profit of the business, as well as the owner’s salary and benefits, the depreciation, and other non-cash items. So don’t panic because the bottom line isn’t what you think it should be.
By the time all of the appropriate figures are added to the bottom line, the cash flow may look pretty good.
Notes
If you’re like many small business owners, you’ll have to search for some of these items. After you gather all of the above items, you should spend some time updating the information and filling in the blanks. You most likely have forgotten much of this information, so it’s a good idea to really take a hard look at all of this. Have all of the above put in a neat, orderly format as if you were going to present it to a prospective purchaser. Everything starts with this information.
Insider Tips
The big question is not really how much your business will sell for, but how much of it can you keep? The Federal Tax Laws determine how much money you will actually be able to put in the bank. How your business is legally formed can be important in determining your tax status when selling your business.
For example: Is your business a corporation, partnership or proprietorship? If you are incorporated, is the business a C corporation or a sub-chapter S corporation? There are also tax rules that impact certain businesses on seller financing. The point of all of this is that before you consider price or even selling your business, it is important that you discuss the tax implications of a sale of your business with a tax advisor. You don’t want to be in the middle of a transaction with a solid buyer and discover that the tax implications of the sale are going to net you much less than you had figured.
All Financial Reviews
Include Full EBITDA Recast
Buyers Are 75% More
Interested in Clean Financials
300+ Qualified
Buyers Ready to Invest
10% of All Dealer
Sales Closed Nationwide
Most buyers today are individuals looking to leave traditional employment, replace lost income, or gain more independence. Many invest personal savings—often under $100,000—to start their next chapter.
While many buyers are men, more women are entering entrepreneurship every year. Most are first-time owners who have never bought a business before but are ready to take the leap when the right opportunity appears.
Below are your buyer traits:
Business Broker
Buyers rarely purchase for passion alone, they buy income. Cash flow shows how well a business supports its owner and operations.
When your accountant recasts your financials, remove one-time expenses and personal perks to show the true earning power of your business. This clear view helps serious buyers move faster and pay more.
Most buyers are looking for one thing above all cash flow. Understanding how they think will help you prepare your business for the best possible offer. Many buyers today are internet-savvy, comparing multiple listings online before reaching out.
The money needed to buy a business depends on its size, profits, and assets. Most buyers use a mix of savings, business loans, or seller financing to complete the deal. A business broker can help you understand the full cost and how much working capital you’ll need after the purchase.
Buyers look for steady sales growth year after year. A business that shows even a small, consistent increase in sales tells buyers it’s stable and in demand. Strong sales trends can raise the business’s value and attract more serious buyers.
Inventory includes all products, parts, or items the business sells or uses. The total value of inventory is counted in the sale price, but it’s usually verified during due diligence. Clean, well-organized inventory helps buyers feel confident they’re getting full value for what they pay.
Knowing the total debt shows buyers how financially healthy the business is. Less debt means fewer risks and stronger cash flow. A clear financial report helps both the buyer and seller agree on a fair price and makes financing easier.
Many buyers prefer when the seller stays for a short time to train them. This helps the new owner learn daily operations, customer habits, and vendor relationships. A short transition period builds trust and keeps the business running smoothly after closing.
Buyers are drawn to businesses that stand out from the competition. This could be a trusted local name, loyal customer base, or a strong online reputation. Unique strengths increase market value and make the business easier to market and sell.
Buyers want to see room for future growth. Adding new services, locations, or online sales can increase profits over time. A business with clear growth opportunities is more appealing and often sells for a higher price.
You should create an operations manual
The time to replace that old worn-out piece of equipment is before you decide to sell. Don’t assume that a new owner will want to do it or that the price will just be slightly lower because you haven’t replaced it. The time to “spiff up” the business is now, even if you aren’t selling. Fix the sign, replace the carpet, paint the place – make it look good. Even if you’re not selling, it’s just plain good for business, and you never know when the time to sell will occur. Keep in mind that anything that increases sales also increases profits and the all-important cash flow!
There are other things that add value to your business. Don’t discount the value of customer lists, proprietary products and/or techniques, well-maintained equipment, secret recipes, customized software programs, or good employees. These are termed “off-balance sheet items,” and although not used in most pricing models, they add to value. Look at your business very carefully so you don’t overlook those items that make your business more attractive to the buyer.
Long before you put your business on the market, eliminate the surprises! Review every facet of the business and remedy any problems that could appear during the sale process. No one likes surprises – most of all potential buyers. Whether legal, accounting, environmental, or anything else – solve it now.
The first question almost every seller asks is: “What is my business worth?” Quite frankly, if we were selling our business, that is the first thing we would want to know. However, we’re going to put this very important issue off for a bit and cover some of the things you need to know before you get to that point. Before you ask that question, you have to be ready to sell for what the market is willing to pay. If money is the only reason you want to sell, then you’re not really ready to sell.
Insider Tip
It doesn’t make any difference what you think your business is worth, or what you want for it. It also doesn’t make any difference what your accountant, banker, attorney, or best friend thinks your business is worth. Only the marketplace can decide what the value of your business is.
The second question you have to consider is: “Do you really want to sell this business?” If you’re really serious and have a solid reason (or reasons) why you want to sell, it will most likely happen.
You can increase your chances of selling if you can answer yes to the second part of this question: “Do you have reasonable expectations?” A yes answer to these two questions means you are serious about selling.
The time to replace that old worn-out piece of equipment is before you decide to sell. Don’t assume that a new owner will want to do it or that the price will just be slightly lower because you haven’t replaced it. The time to “spiff up” the business is now, even if you aren’t selling. Fix the sign, replace the carpet, paint the place – make it look good. Even if you’re not selling, it’s just plain good for business, and you never know when the time to sell will occur. Keep in mind that anything that increases sales also increases profits and the all-important cash flow!
There are other things that add value to your business. Don’t discount the value of customer lists, proprietary products and/or techniques, well-maintained equipment, secret recipes, customized software programs, or good employees. These are termed “off-balance sheet items,” and although not used in most pricing models, they add to value. Look at your business very carefully so you don’t overlook those items that make your business more attractive to the buyer.
Long before you put your business on the market, eliminate the surprises! Review every facet of the business and remedy any problems that could appear during the sale process. No one likes surprises – most of all potential buyers. Whether legal, accounting, environmental, or anything else – solve it now.
We’ll help you navigate the process strategically and maximize your return.