Since the beginning of the year, markets had become highly active, and valuations were up, making 2022 an ideal year to sell your business. As the year comes to a close and we enter 2023, you may be thinking about selling your business this year, but how do you know you are ready to act? In the past, we addressed several motivators that may have led you to your decision, but just because you are motivated does not mean you are prepared for what is to come throughout the journey. To better understand whether your company is ready to be sold, we will walk you through the best questions to ask yourself prior to jumping into the market.

Is Your Team in Place?

Your team plays a vital role in the success of your company and a buyer will not give you what your business is worth if they see a weak team in place. It is important to make sure the teams that make up your business (marketing, sales, management, etc.) are performing efficiently in driving sales, function, and customer relations. Not only will a formidable and experienced team prove your company’s efficiency, but they can support you throughout the preparation period prior to a conversation with a potential buyer. The point is that you should not pick up the phone to call a potential buyer if you do not have information readily available about your team.

What Does Your Customer Make Up Look Like?

Buyers will typically want to know about the mix of customers your business attracts. Ask yourself about the diversity of your customers. From a buyer’s perspective, if you are relying heavily on one customer who has been with you for years and is the reason your company has succeeded, this has the chance of devaluing your business and creating uncertainty. The reason is because the buyer will not know if this valuable customer will stay around once you leave which is a risk that someone might not be willing to take. The best thing you can do for the sake of your business is to diversify your customers. Some ways to do this are to meet with your sales team to start targeting a broader audience or hire a consultant to help you achieve this goal.

Do You Have Your Financials Prepared?

It is no surprise that a buyer will ask to review your business’s financial statements, so be sure to have those ready. To prevent your buyer from losing interest and from making the process more difficult than it needs to be, make sure your statements are as detailed as possible and your turnaround time from when a buyer asks for them to when you provide them is quick. If you cannot provide a buyer with current, accurate and complete financial statements, you have gotten your answer for whether you are ready to sell your business. Having strong finances is one of the best indicators of a great business, so you should use this opportunity to prove to a buyer that your company is something worth investing in.

How Up to Date Are Your Information Systems?

The information systems are what you put in place to protect your company’s assets. Information technology is just one of the aspects a buyer will look at and determine if they are going to follow through with a deal. If they do not approve of your systems, there is a high possibility of the deal breaking. For example, if you have a dated system (dated meaning has not been updated in the past three years), the buyer will have to put a certain percentage of their own money into purchasing a new system that is up-to-speed with industry standards while also paying for the resources needed to integrate their own systems.

Overall, it is smart to analyze each aspect of your business and get the numbers right before running to the market with a price in mind. Asking yourself these four questions early in the preparation process will better prepare you for a conversation with a buyer and set you up for an outcome that is going to align with your goals and objectives.

Osage Advisors provides a lot of guidance in the M&A market here on our blog and on our YouTube channel and Podcast.