How to Prepare Your Business for Sale

Selling a business can be the largest and most important deal of an entrepreneur's career. Regardless of what prompts the sale, selling a business is a high-stakes transaction, with far-reaching financial and emotional consequences.

In the best of all worlds, the owner begins to prepare

his or her business for sale at least one year in advance. Start by assessing financial books with an eye toward creating audited financial statements and projections that illustrate the company's revenue and growth potential.

Records should be formalized and clearly document all transactions. This way, potential buyers can easily evaluate the company, and a new manager can take over with minimal training.

Eliminate idiosyncrasies. The new owner will not want to face a customer who expects special treatment, nor will he want to be the ogre who cancels a long-standing verbal agreement with the company's oldest customer.

Examine all supplier and customer contracts. Make sure terms and conditions will not expire or require renegotiation just as a new owner steps in. Terminate contracts that might trouble a potential buyer or that drain the company financially or serve little purpose.

Start codifying company policies and procedures that exist as unwritten rules. If necessary, create a procedure manual that documents exactly how to best run the business; be sure to include your unspoken, undocumented techniques.

Review your real estate leases, especially if your business is tied to its location. Make sure the lease does not expire or require renegotiation within the time frame that you plan to sell the company. If the company's location will discourage buyers, consider moving the location before you place the business up for sale.

Analyze the equipment leases and other material contracts from the buyer's perspective.

Fully evaluate and catalog company assets, from property to warehouse inventory to employees. If you delayed investing in computer upgrades designed to manage and control the flow of inventory, now is the time to modernize.

If company assets include real estate, separate or sell the property before the company hits the market. Real estate can devalue a business simply because it complicates the financial records, which in turn can make potential buyers hesitant to assume a new business with added expense.

Finally, don't forget about employees. The loss of key employees during a sale can kill a deal. Key employees may be crucial to the new owner's success, so it's important to determine which employees are prepared to stay with the company during and after the transition. Also, don't forget to inform your staff of your intentions to sell. It is important that employees don't hear about the pending sale of the company from a third party.