You’ve prepared your financials and have a professional valuation underway. You know you’re going to sell your business — it’s just a matter of when.

So… what now? What should you be doing while waiting for the next step of the process to begin?

Throughout the process of selling a business you want to make sure that sales and profits remain strong, or at least steady. But it’s also a time when you should be examining all areas of the business to ensure they are all operating as effectively as possible. These efforts will help ensure your business sells for maximum price.

Once you “go to market” with your business (in the next step) your next 3-6 months will be busy engaging with potential buyers and responding to additional data requests. This is why we list this step just prior to going to market.

Take this time to revisit each segment of the business to ensure it is functioning as it should and spend any time needed making necessary adjustments and improvements.

Keep the Machine Running at Peak Performance

Engaging in the process to sell your business will likely take a lot of your time and focus. Even if your business is perfect in every area, you need to spend time ensuring that it stays that way. Far too many times I’ve seen owners get caught up in the sale process and allow certain areas of the business to lose traction or even fall apart completely.

As an example, we recently worked with an owner selling a business who was doing a great job organizing all of their data and being responsive to diligence requests because he wanted to ensure the process moved along as quickly as possible. Meanwhile, the extra focus that was put on these tasks resulted in them falling behind in their customer billings. This fact wasn’t noticed until the buyer was in diligence and had ordered a Quality of Earnings (Q of E) which showed that many of their largest clients had large amounts becoming more and more overdue.

This is a major red flag to a buyer if the largest clients are becoming unable to pay or deciding not to pay. Luckily, in this situation the customers who were late had all been happy customers for years and a simple call to each of them to explain that they had missed sending out some of the invoices resulted in them all catching up over the next few weeks.

We’ve seen other businesses fall behind in their sales process resulting in a lower number of new customers. This seemed to imply that maybe business was having trouble winning customers or that growth may be slowing. Others have allowed marketing efforts to slow, processes to derail or innovation to lag. While there are many other examples, each of these raise a flag for a potential buyer and may negatively impact how much your business is worth.

Improve Areas That Can Enhance Value to a Buyer

As much as we may think otherwise, most of our businesses have some areas that could be enhanced in the eyes of a buyer. So, during this stage of the process to sell your business, you should also be spending time determining which areas of your business are the lowest hanging fruit for improvement and which could increase business valuation the most.

In addition to reviewing the professional valuation, a good M&A advisor or business consultant will be able to assess the business and help you identify which areas are most important, which just need a little work and which are larger projects. They can then help you prioritize those areas and put a plan in place to address them.

Similar to a real estate agent suggesting a few light paint touchups, there may be some areas of the business which would require minimal effort to address and can be taken care of rather quickly. These should be addressed in order of priority. Others may be larger projects, like replacing all the carpet on the main level or even remodeling the kitchen, that will take more time.

As we continuously preach, the process to selling a business should start many months or even years prior to when you actually want to go to market for exactly these reasons. If there are larger projects that could have serious impacts on value, the additional time spent to put them in motion and prove their success will be well worth the effort.

Key Areas to Examine to Increase Your Businesses Value

The following are some key areas that you should examine at this stage of selling your business. Whether you feel your company is strong or weak in these areas, it’s worth it to examine them to ensure your business is showing at its best as buyers perform their diligence.

Are the Right People in the Right Roles?

When we consult with a company regarding its people, we often start by determining if they have the right people in the right roles.

This process starts by identifying how the business is organized and what roles are accountable for the major functions within the company (finance, sales & marketing, operations, etc.). This is different than a simple organizational chart, which simply shows who reports to who, and focuses more on who is accountable for each of the major functions that drive the business.

Once you have that structure laid out you can then start to assess if you have the right people in each role to be accountable for that function. Defining the roles to be accountable for each function will guide your decisions for hiring, replacing and promoting those in that role.

Ensuring you have the right people in the right roles means that they fully understand what that role entails, have the desire to work in that role and have the skills and experience necessary to be successful there.

Now if you’ve started the process to sell your business early enough before you go to market, then this kind of analysis can be thoroughly analyzed and corrective measures can be taken to ensure you get the right pieces in place.

But, if you are going to market soon, you may not have enough time to go too in depth here and you may not want to disrupt the organization to that degree. If this is the case, look for the most obvious mis-matches.

Is there someone who should clearly be promoted, let go or simply moved to a more appropriate area? If so, these small, proactive improvements may help your company when buyers are assessing during diligence.

Are Your Employees Happy?

Before selling your business, it is also important to ensure all of the employee contracts are up to date and any necessary non-compete agreements are in place.

When a buyer considers purchasing a business, he wants to know that the key people are happy, will remain with the firm and have compensation expectations that are in line with what is being communicated to the buyer.

What Does Your Customer Concentration Look Like?

Customer concentration is a major factor in a buyer’s mind and can often impact price when selling a business and the structure of that offer.

As a buyer, I am willing to pay a higher overall price and a larger portion up front for a business where no customer makes up more than 5% of revenue, than I am for a business where the top 3 customers make up 65% of the revenue. The latter business presents more risk to a buyer because if just one of those customers leaves, the business would experience a major decline in financial results.

If your business has a large amount of customer concentration, expect a buyer to tie a larger portion of the purchase price to the performance and/or retention of those customers over the next 2-3 years. If you are able to make efforts to diversify that concentrated revenue it will not only show that there is less risk in your business, but new customers will also show that you can grow outside of those large customers.

What Customer Contracts Are in Place?

When preparing your business for sale it is a great time to review customer contracts to make sure they are all signed, accurate and up to date, especially any larger clients as discussed above. We have numerous stories about buyers asking for copies of customer contracts during diligence only to find out that some have expired, were never signed or are still using an old version that doesn’t align with current practices.

Even contracts that are correct may be coming up for renewal soon. Before going to market to sell your business it’s a great time circle back with those customers to ask how they are liking your product or service and potentially see if you can get them to renew now. If they are happy with your services, they may even be willing to renew new for a longer period of time, and the longer the customer contracts are the more that increases business valuation in the eyes of a buyer.

In certain situations, it may even be worth it to offer customers a slight discount in order to entice them to sign a longer contact. A good consultant can help you weigh the value of extending a discount in return for signing a longer contract and its potential impact on valuation.

Do You Have Weak Customers You Can Strengthen?

Customers that are a hassle, not profitable or falling behind in payments should be discussed amongst the team. It is quite often worth the time to reach out to these customers simply to understand how their business has been going and how they plan to engage with you moving forward.

Some businesses are just small and won’t ever be able to become a larger client. But others may be deciding between you and your competitors, in which a simple call to understand how you can work better together may help sway that decision. We’ve also seen some customers holding back because they had a bad experience or aren’t quite getting everything they need from you. Again, a quick call to understand those issues could have a meaningful impact to the business moving forward.

If you have customers who are behind in payments, now is a great time to reach out and address those issues. It may be that the delay was caused by something on your side, in which you can correct it and make sure it’s addressed for the future.

Or it may have resulted from something on the client’s end. If this is the case, then taking time to understand that problem and determining a way to address it moving forward will bypass potential setbacks later in diligence and help the business show better to potential buyers.

Can You Ensure Your Strongest Customers Stick Around?

In addition, this is also a great time to cement strong customers. This is likely as simple as calling them to say thank you for your business, inviting them to an event or dinner or even showing up to their work to see how they are using your product or service. Internally, make sure these customers are receiving a high level of service from your team.

Also, it will go a long way to ask these customers for their feedback and what else you could be doing to improve their satisfaction. These customers are already doing a large amount of business with you and see major value in what you do, so getting their feedback and ensuring their satisfaction can prevent major surprises, ensure revenue stays strong and even lead to more business or referrals.        

Do You Document Your Processes & Systems?

Have you taken the time yet to document the way everything in your business should be done? If not, and even if you have, this is a great time to walk through ALL of your processes to ensure they are operating in the best way possible. This effort can provide great insight to you, your employees and a potential buyer as to how things work and also help evaluate areas for improvement.

When employees know what processes to follow and why, it can lead to a more efficient and effective workforce resulting in higher productivity and stronger financial results. If they all know the processes, take the time to ensure they are all executing them in the correct fashion and a timely manner.

When we’ve worked with owners who examine these processes, we often find that some steps are being skipped. For those, you need to take the time to help staff understand the importance of each step and how best to follow the steps in order to improve results. We’ve also seen owners identify ways to improve efficiency within their processes which have a direct impact on the bottom line and the value they receive at closing.

Finally, showing these processes to a potential buyer can help them better understand the business and identify ways in which they may be able to make improvements and enhance value in the future.

What KPIs Do You Track Internally?

Most businesses have specific KPIs (Key Performance Indicators) that they know they need to focus on in order to measure performance toward goals. In addition, there are often a number of metrics (or numbers) within each of these KPIs that allow them to track progress toward achieving those KPIs.

When preparing to sell your business you should make sure you document all of the KPIs and underlying metrics that you track. You should also document the results of those findings for the past few years, if possible, to show how those numbers directly impacted financial results. This not only helps a potential buyer better understand the business, it also shows that the business is well run by a leader who knows what has to happen in order to maintain and grow.

For example, we’ve seen some leaders manage the business through a score card. This often includes 5-15 high level numbers that the company needs to hit on a weekly basis. This also give the manager a heads up when things are beginning to fall off track and also provides some insight to predict future developments and trends. It is much easier to quickly spot potential issues, or identify strengths, as they come up as opposed to reacting to financial numbers in a statement long after the fact.

Are You Prepared for Future Growth?

As you examine all of the areas listed above, you should also take this time to ensure the business is positioned to execute whatever growth opportunities you plan to communicate to potential buyers.

To start, if you haven’t yet identified ways the business can grow in the future you should start there. As buyers examine businesses, they are very interested in what they could do with it in the future to drive additional growth and profits. Approach this process with this in mind: if someone came in with a bunch of capital and wanted to accelerate growth, what are the best ways they could utilize that investment to get the best results, given how you’ve positioned the firm.

While many buyers will have some of their own ideas, no one knows the business, its strengths and opportunities as well as you do. So, for you to outline what you feel are the best opportunities to pursue, it not only helps them see those opportunities but it may also turn them on to new ideas that they had not yet considered. Those opportunities could potentially lead to a higher offer price when selling your business.

Once you’ve outlined what opportunities the business has in the future, then take time to ensure the business is set up to accomplish those, or at least to get started down that path.

For example, a firm we were recently talking with said that a major growth opportunity for a buyer was to start making acquisitions of other smaller firms in the industry. But when we looked into details of the company, they didn’t have nearly the people or operational structure to support the types of acquisitions they were talking about. This was certainly possible in the future, but it would require a decent amount of investment in staffing, technology and other areas before they could even begin to start down this path.

Another firm had built out pro forma financials stating that there was a huge opportunity to add new customers in a specific area. But when we looked further into their sales structure and history, we found they had not won a new customer in over 3 years, nor did they have the sales team in place to even pursue new customers as they had described.

The opportunities available to a firm, and those that are best for it, are heavily dependent on how the company is positioned and what its competitive advantages are. Having a thorough understanding of these opportunities, and articulating to a buyer how they could evolve, may help the buyer see more potential and increase business valuation.

You should also be able to communicate an estimate of what investment would be needed to pursue certain opportunities. You don’t need to know the exact numbers for every scenario, but you should be able to give them high level guidance. For example, what capacity your current team has and who else would be needed in order to expand into a certain new area. Or approximate new pieces of equipment needed for a certain opportunity and an estimate of what each would cost.

Are There Any Outstanding Legal Issues?          

Last but not least, review any past or outstanding legal issues. Are they fully resolved? Is there a simple & cheap solution to get them resolved?

Even if they are not resolvable, do your best to address them as much as possible right now. It’s better to address these issues and attempt to resolve them beforehand so they don’t need to be addressed during diligence. This could potentially delay the process and may signal risk to the buyer, potentially causing them to reduce price or walk away altogether.

Selling a business can be difficult, time-consuming, and frustrating. Before you take the plunge, prepare yourself by reading our 70+ page ebook, The Ultimate Guide on Selling Your Business. Still have questions about selling your business? You can contact us here.