HOUSTON BUSINESS REVIEW

TUTORIAL ON SELLING YOUR BUSINESS “PREPARING YOUR BUSINESS FOR SALE – PART IV (A)”
By Ralph Fain

Ralph Fain is a principal in the brokerage firm, R/Fain Group. Mr. Fain also has over 20 years of broad business experience with Fortune 500 companies. R/ Fain Group is a professional business brokerage firm which confidentially represents the interests of various sellers and buyers. Each week Mr. Fain will give tips on Business Brokering, and how to sell your business.

Last week in this series we reviewed the documentation and information a business owner must provide to a prospective buyer in the selling process. The most critical records were financial in nature (as these will provide the potential purchaser a most important basis for making a valuation determination) and we also discussed the provision of other information (leases, contracts, vendor customer agreements, etc).

This week, in a continuation of the “Preparing Your Business for Sale” series, we review other ways and means by which an owner can maximize the “saleability” of his/her company and help to ensure the best possible price for the company. In addition to the provision of the above records and in addition to doing everything possible to ensure that all legal, employment, environmental, tax et al issues are resolved (remember, no unpleasant surprises for the buyer!), the seller should also be acutely aware that appearances and intangibles count.

The appearance of the physical store/office/plant of your company, the condition of its equipment, and the level/condition of its inventory, etc can make the difference between a sale at the maximum possible price and/or no sale at all. First impressions are very meaningful and really can make a significant difference to that most important person – the qualified buyer. Given the choice of two businesses (one of which is well maintained, orderly and clean and one of which is not), guess which one the buyer will choose – and, make no mistake, 9 times out of 10, the buyer is looking at more options than just your company.

The key is to make your company stand out and to make it unique in the eyes of the buyer. And actually, if finances allow, the time to enhance the appearance of your company is now (even if you are not selling, it’s just good for business if your business looks good!). Some areas to consider:

• Maintain premises in good condition
- Engage in good housekeeping practices (keep all areas swept, clean and well maintained)
- Invest (if finances allow) in making your facility shine – new paint, flooring, et al
- Don’t store non-operational furniture, fixtures, and equipment on site
(don’t let your premises become a graveyard for these items)
- Clean/maintain outside premises (repair signs, replace outdoor lights, maintain grounds and parking facilities)

• Address environmental and safety areas
- If an industrial operation or manufacturing facility, review OSHA requirements and ensure compliance
- Same for environmental rules/regs (alternatively, engage a safety or environmental consultant for this review)

• Maintain equipment in good, working condition
- Replace or repair non-operating equipment (if it’s not being used and if it’s feasible, remove it)
- Invest in updated equipment (if financially feasible and if the investment supports revenue growth and improves efficiencies)- this will ultimately increase the value of your company)

• Maintain inventory at normal, reasonable and appropriate levels
- Eliminate slow moving or obsolete items/products (keep inventory current)
- Do not cut back on essential inventory items in order to reflect a minor and temporary financial improvement to gross margins and/or cash flow (sophisticated buyers will detect this and, in the long term, such actions diminish the value of your business)

The adoption of the above common sense practices will reflect favorably on physical appearance; an impressive physical appearance implies pride of ownership which implies attention to customers’/clients’ needs and concerns, attention to product/service quality and attention to a whole host of other areas which manifest themselves ultimately in the form of a successful enterprise – one which is resultantly accorded a higher price upon sale.

Note: This article originally was to continue with the delineation of other factors (intangibles and unique) which can be readily implemented and which add value to your business. Due to space limitations however, it will have to be continued next week in Part IV (b). Our apologies for any inconvenience to the reader.

As always, see you next week in this space when we will continue the series on “Preparing Your Business for Sale”. Should you have any questions or require additional information about the above or about buying and selling businesses in general, please feel free to contact the R/Fain Group at 832-646-0832 or via our web site.