Selling your company is generally a once in a lifetime event fraught with emotion and filled with risk.  Both money and a lifetime of work are at stake, therefore the considerations before and during a sale are vitally important.  The process is important, and mistakes can cost a great deal, so one should proceed methodically.

Preparing a company for sale and growing a company to maximize value share many of the same building blocks. The process can take several years if a company is not in shape, or just 6 months for an established well-run company.  Business owners typically want a premium price when they sell, and they get that when sales and profits are growing consistently and rapidly.  Here are several keys to build value and prepare a company for sale:

1. BUILD THE COMPANY FOR THE LONG TERM.  Most transactions are priced as a function of current and potential future profits.  Buyers want to purchase long term earnings growth. A strong company is more likely to deliver this desired growth, and therefore garner a premium price.  Beware though, inflating short-term earnings will be discovered.  Buyers are sophisticated and due diligence uncovers many issues. These three topics might help you focus on the long term:
a. Develop a strong management team.  Buyers want to know that there will be an ongoing and competent team able to successfully run the business after the sale.  Strong merchandising and management organizations can not rely solely on people who will not be there after the sale.
b. Develop controls, systems and reporting. Systematizing processes and controls will generate information, stability and confidence.  Merchandise and expense reporting are necessary to every merchant. No one likes to be surprised, especially during a sale process that can stretch out over months. Audits or accounting reviews by CPA’s is a minimum requirement.
c. Develop a defensible strategy.  Long term growth requires a strategy and business which can withstand competitive pressures.  Differentiation, strong locations and customer lists, brand equity, and exclusive products are just a few ways to convince buyers that there is
a stable, defensible earnings flow.
 
2. MAXIMIZE PROFITS.  While maximizing short-term profits is sometimes in opposition to building a long-term company, the two goals play side by side with building strong companies and valuations.  Companies are priced as a multiple of earnings; therefore maximizing earnings in the last three years before a sale are crucial to receiving a full price.  Below are five ways to increases profits, not all will be appropriate in every situation and each of them must be implemented with care, thought and analysis.
a. Cut any slack from your organization. While any organization needs some slack to operate, reducing headcount can be an effective way to increase profitability.  Cuts can not be made to the bone, but trim any and all excesses.
b. Cut any unnecessary expenses.  Every dollar of profit translates to between 4 and 10 dollars in purchase price.  Be a hawk when it comes to discretionary expenses.  While the business needs to continue to run, remember that each dollar spent lowers the sale price of the company
c. Cut any money losing projects or divisions.   Unless there is a significant and compelling reason to sustain money losing operations – close them.  The one time costs associated with the closing will be addressed in the sale and profits will look better.
d. Squeeze suppliers. Vendor relations are important long term resources, but even small changes in cost of goods and expenses can add significantly to the bottom line.  Vendors may not appreciate being squeezed for 10% of their price, but what about 2.5%.  Do the math, the numbers will add up.
e. Raise prices. While raising prices can be a risky proposition, the numbers here can also be compelling.  If your product line is unique and defensible, and the price increase is done smartly, even small increases in prices will generate large increases in profits.

3.   UNDERSTAND THE COMPANY. When it comes time, you are going to be the salesperson for your company.  It is much easier and more convincing to sell any product if you truly understand the key drivers of sales and profits.
a. Know the market.  Understanding the market forces is a key to conveying to a buyer that you understand the business.   You should be intimately familiar with competitors, trends, and outside influences. 
b.   Know your customer.  Can you articulate what distinguishes your company from your competitors?  You must understand who your customers are and why they choose you.
c. Know your company.  Analyses, reports, studies are all ways to understand your company.  You must be able to articulate the hows and whys of your performance, your team, and your future.

4. UNDERSTAND THE PROCESS. Selling a company is similar to selling any other high value, one of a kind product – marketing, packaging and salesmanship are key drivers to success.
a. Use expert financial and legal advisors.  Expertise and experience can add significant value to a transaction and increase the probability of consummating a deal. 
b. Manage your company.  Don’t let the sales process keep you from the day to day management of the company.  The business must continue to run smoothly.  Anticipate the impact of due diligence.
c. Market your company. Use your understanding of the business to communicate its strategic vision and its opportunities.  Selling documents must convey more than just financial statements.
d. Seek multiple buyers.  Having more than one potential buyer greatly increases the probability of a full price and favorable terms.   Furthermore, it allows you the opportunity to select the best buyer.
e. Understand yourself and those around you.  Privately-held, family owned businesses need to assess the emotional status for the highs and lows of the process. You should think about the impact on you, your family, employees, customers and community. For example, will you suffer a loss of personal identity resulting from the sale?

Selling a company is typically an infrequent event, but preparing for a successful transaction is an on-going process.  First you need to build a strong company with sustainable and defensible profits, then you must be able to articulate its positive attributes, and finally you must manage the sales process to close a deal.

Stuart Rose is a Managing Director at Tully & Holland, Inc.  Tully & Holland are specialists in corporate finance serving retailers, direct marketers, and consumer product manufacturers, and is a member of FINRA, DMA and NEMOA.