Business Valuation Guide
January 4, 2024 ⋅ 3 min read
Preparing to sell your small business involves careful legwork before you even list for sale. There are several steps you can take on your own before consulting with and paying an expert to support you. Baton’s team has created a 10-step guide to help you get started.
Organize your financial records
Ensure your financial records are accurate, up-to-date, and well-organized. This includes financial statements, tax returns, profit and loss statements, and other relevant documents. A clear financial history is crucial during the selling process.
Conduct a preliminary business valuation
Use online business valuation tools to get a preliminary estimate of your business's value. While these tools provide rough estimates, they can give you an idea of what to expect. Keep in mind that a professional valuation will be more accurate. Rather than relying on one tool to give you a benchmark, use several tools to understand the potential sales range. An expert will help you adjust this number based on the market and your specific businesses’s circumstance.
Assess your reasons for selling
Clearly identify and articulate your reasons for selling. Whether it's retirement, pursuing other opportunities, or personal reasons, understanding your motivations will help guide the sale process. This step will also help you identify a broker who has helped sellers matching your profile in the past.
Address operational efficiency
Streamline your business operations to make it more attractive to potential buyers. Identify areas for improvement, reduce unnecessary costs, and enhance overall operational efficiency. This is the “put your best foot forward” step that can take both small and large forms. Experts like Baton’s team can help identify additional efficiency opportunities down the road.
Document key business processes
Document key business processes and standard operating procedures (SOPs). Clear documentation not only makes your business more attractive to buyers but also facilitates a smoother transition during the handover. The step will also help a broker understand your business and pitch it to potential buyers.
Evaluate customer and supplier contracts
Review and organize customer and supplier contracts. Ensure that contracts are up-to-date and clearly outline the terms and conditions. Highlight any long-term agreements that may be valuable to potential buyers.
Enhance curb appeal
Consider the physical appearance of your business. Make any necessary improvements to enhance its curb appeal. A well-maintained and visually appealing business can leave a positive impression on potential buyers. The second you list your business for sale, you’re inviting potential buyers to visit you, even without you being aware.
Resolve legal and compliance issues
Address any legal or compliance issues. Ensure that your business is in compliance with all applicable laws and regulations. Addressing legal matters upfront can prevent complications during the sale process. Resolving these issues will also give buyers confidence that your operation has minimal complications.
Diversify revenue streams if possible
If applicable, explore opportunities to diversify your revenue streams. A business with multiple sources of income may be more attractive to buyers and may be perceived as less risky.
Keep your decision to sell confidential, especially with employees, customers, and suppliers. Premature disclosure can lead to uncertainty and potential negative impacts on your business.
Before proceeding with these steps, it's important to consult with legal and financial professionals to ensure that you're taking the right approach for your specific situation. Once you've completed these preliminary steps, you'll be better positioned to consult with a business expert, such as a business broker or appraiser, for more in-depth guidance on the sale of your small business.