Is Your Business Ready to Sell?
Follow these steps when putting your laboratory on the market.
It is not unusual for small laboratory owners to have emotional swings when making the tough business decision to put their laboratory up for sale. After all, many hours of sweat and tears have been expended to build the laboratory into a successful business. While most laboratory owners are skilled at making crowns and dentures, they are not prepared for all that happens when it comes time to sell.
With that in mind, here are 10 critical steps you might consider if and when you decide to sell your business.
1. Can your business be sold?
Many elements of a business make it attractive to buyers. For example, does it have a solid history of profitability, a large and loyal base of customers, or a competitive advantage (intellectual property rights, long-term contracts with clients, exclusive distributorships)? What are the opportunities for growth? Is your business in a desirable location, and does it have a skilled workforce?
2. Know your laboratory’s worth.
Think through your long-term goals and objectives well before selling and investigate your post-sale plans. Then talk to an experienced accountant or laboratory business valuator to determine a proper price. Using a laboratory business valuator helps sellers view their laboratory from a buyer’s perspective. One of the biggest reasons sales are not successful is because sellers have unrealistic expectations about the value of their business.
3. Prepare for the sale.
Unless you want or need to exit immediately, enhance your laboratory’s appeal by preparing for a sale at least 1 to 2 years in advance. It pays to clean up your financial statements, trim debt and expenses, eliminate obsolete inventory, and resolve any litigation issues. And especially, do not forget to spruce up your facility.
There is no way to overstate the intensity with which buyers will scrutinize your business, but there are things you can do to put your best foot forward. Not being able to provide accurate financial statements on time can cause a deal to unravel in short order. Be sure to have the following on hand before you go to market:
• Last 3 years’ profit-and-loss statements
• Last 3 years’ balance sheets
• Year-to-date profit-and-loss statement
• Current balance sheet
• Last 3 years’ full tax returns
• List of furniture, fixtures, and equipment
• List of inventories
• Commercial property appraisal or lease agreement
Be ready to furnish other documentation—particularly during the due diligence phase, when you will probably be asked to produce insurance policies, employment agreements, customer contracts, lists of patents issued, equipment leases, and bank statements.
4. When is your business ready to sell?
The optimal time is when the laboratory is worth the most and when there are growth opportunities. Laboratory owners boost their sales chances and secure a higher price by making themselves less essential to the laboratory’s success. Buyers prefer laboratories that are not dependent on the owner for maintaining key customer relationships.
5. Consult the right team.
Include a lawyer, a banker, a laboratory business valuator, and an accountant to discuss taxes, retirement, and other financial implications. The biggest mistake sellers can make is to try to do the sale themselves and not work with professionals.
Some laboratory owners may market the business through word of mouth or industry channels. Others may reach a broader audience through online markets and/or work with a broker. Hiring a broker helps sell the business more quickly and at a higher price.
7. Pre-qualify buyers.
The majority of potential buyers are not qualified. You can usually quickly sift through candidates with your asking price and their willingness to supply confidential information about their financials. Pre-screened prospects should sign a nondisclosure agreement involving some but not all aspects of your laboratory. In addition, you should require buyers to submit some basic information:
• Name and all contact information
• Previous employment and business ownership
• Educational background
• Funds available to invest and sources of financing
• Minimum monthly income requirement
• Intended timeframe for completing a transaction
• Reason for interest in your business
8. Laboratory biography.
The aim of a biography is to engage prospective buyers with a truthful and inspiring account of your laboratory. It often includes an outline of the laboratory’s history, strength, and uniqueness; 3 to 5 years of updated financial performance; marketing materials; a list of key customers, employees, and vendors; and finally, a justification of the asking price. The biography gives qualified buyers a snapshot of your laboratory. It is part marketing and part courtship.
9. Letter of intent.
A letter of intent vaults the buyer’s interest to another level. The document takes your business off the market and offers a potential buyer negotiating exclusivity. Expect the prospective buyer to shower you with numerous questions on confidential matters— including everything from growth potential, to pending liabilities, staffing and management capabilities, and customer retention.
Also, while the letter of intent is being discussed or negotiated, the seller’s role post-sale will be firmed up. Some sellers get too emotionally attached to a specific price and are not willing to negotiate. Instead of viewing the price as a deal breaker, consider all the terms and conditions. A willingness to be creative with the terms of a transaction can go a long way toward a successful sale. All sellers hope to get a full-price cash offer for their business. But in reality, this rarely happens. More often, buyers will make a down payment and then pay some or all of the remainder in installments to either you or a lender.
10. Completing the sale.
The buyer and seller affix the last tweaks to price, terms, and conditions, and sign a purchase and sell agreement to close the deal. The selling process typically takes anywhere from 6 to 12 months.
Selling a business requires setting realistic expectations, avoiding surprises, and just plain hanging in there. It can be an arduous journey, but one that might have a very tangible (and rewarding) light at the end of the tunnel. Once you have successfully sold your business, savor an accomplishment that not every entrepreneur gets to enjoy.
About the Author
Nick Azar is a business strategist, executive coach, and founder of Azar & Associates. For inquiries, Nick can be reached at firstname.lastname@example.org.