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A good way to make your business appealing to buyers is to put yourself in the mindset of one. What attributes would you look for in a business you’d want to purchase? For most buyers, the answer to this question is a strong current situation and a solid foundation on which to build future success.
A record number of businesses were sold in 2017, according to BizBuySell. This represents a 31% increase from 2016, so now may be a good time to examine this option.
Use the steps below to implement strategies that may help your business appeal to buyers. Your financial, legal, and tax advisors will be important in the process, so be sure to involve them at key junctures.
The various financial documents that describe a company’s strengths and weaknesses are at the center of a strong business profile. Your financial and tax advisor can help you make these documents clear and representative of your business’s potential. Some key things potential buyers will be looking for include a healthy balance sheet, since it showcases company assets and liabilities. Your profit and loss statement (P&L) — also referred to as an income statement — paints a picture for a particular period of time by detailing revenues, costs, and expenses. People looking at your P&L will be evaluating your company’s current revenue, as well as what might be possible to raise revenue and reduce expenses in the future. A cash flow statement is also a metric of business health and potential, since cash flow keeps a company alive.
These financial documents are likely already created and updated regularly, but to prepare for a sale, modifications may be in order. Your financial advisor and tax accountant can guide you in how to modify these reports to make them easy to decipher for outsiders and to put your business in the best possible light.
Business success is built on the employees who help to run a company. A potential buyer will realize this and will want to know that employees who hold key information, help to ensure smooth operations, manage important client relationships, or otherwise impact success are going to be in place for some time to come. This is particularly important to a buyer at a time when an owner is stepping away.
Start by identifying the employees who are critical to company success, then, based on their priorities, look for ways to incentivize them to stay. Some employees have contracts, but others may be encouraged to stay by being given more independence and responsibility or by future earnings potential. Of course, selling a business to employees via an employee stock ownership plan (ESOP) is a possible path to find a buyer. Discuss this option with your advisors.
Any buyer considering your company will also likely be assessing other businesses and opportunities for investment. With this in mind, shore up weaknesses in your company operations to make your business a competitive option. Steps you take to eliminate chokepoints, inefficiencies, and other weaknesses may also increase the price you can charge for your business.
For example, if your current shipping process is causing slowdowns, evaluate the steps of the process and consider revamping your approach. Likewise, if you have communications breakdowns within invoicing or collections, identify your weak points and use the insight to improve your system for faster collections. Any updates will help your business look more attractive operationally and financially.
A buyer may shy away from a company with great potential for earning but even bigger needs for investment. A need for new machinery, delivery vehicles, refrigeration, software, and other items that can drive a business’s success may make a buyer think twice. For example, if adding another delivery van will help you increase the number of items you can drop off each day, consider making that investment to improve the way your company operates and demonstrate its potential.
Likewise, technology can help to improve efficiency and cut costs. For instance, automating the accounts receivable and accounts payable process can help improve cash flow and make this more efficient. Technology that lets everyone on your team view real-time inventory information can increase sales. With any potential purchase, discuss the investment with your tax or financial advisor. In some cases, a buyer may want to put his or her imprint on the business, and it may be best to hold off.
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