Sell your business for the highest price

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(FORTUNE Small Business) -- Dear FSB: We are preparing to sell our small retail store. What measures should we take to ensure that we get the highest price possible? What do potential buyers value most when looking for a retail business?

- Sylvie Taylor, Toronto

Dear Sylvie: Unlike selling a house, you don't want to show your business to everyone. Take the time to prep your business for sale and to get acquainted with the purchasers.

"Don't act out of desperation," recommends Steve Royko, managing director of Cornerstone Business Services in Madison, Wis.. "Sit down and write a business plan so that a potential buyer can see the state of the business, its growth since it started, and where it can potentially go. Then, make sure you have a non-disclosure agreement with the potential buyer."

In demonstrating the history of the company, Jeff Stegner, partner at consulting firm Armanino McKenna in San Ramon, recommends "maintaining a good accounting history of what the business has done. The buyer needs to know what the return of the business is at this moment before he think about the future."

Cathy Durham, principal at Capital Valuation Group in Madison, reinforces this point, adding, "Clean up those financial statements. You need to clearly show 'typical years' of the business, so stop moving revenue around to avoid taxes, and make your tax returns and accounting paperwork look consistent - even if you've changed software or accountants."

Then, focus on the future of the company in your business plan. "If there are plans to get the business growing," says Stegner, "start to implement those plans now and include the details of them in your business summary."

Durham adds, "So many people think they'll sell based on historical performance but the buyer wants to know about future potential. What are current owner's expectations about what's going to happen and how it's going to happen?"

But disclosing the past and future of the business still leaves a lot to do. Kevin Mulvaney, professor at the Olin Graduate School at Babson College reminds us that retailers are often involved in a lease, which needs to be revisited when selling the store.

"The ability to transfer the lease is so important - not just for the storefront, but for the space in which you operate," he explains. "As, how much time is left on the lease and what are the terms and conditions? The landlord may have a statement in there about evaluating the buyer. The potential buyer needs a copy of the lease early on in negotiations and must read it carefully. It takes time to overlay what they plan to do with the business, in comparison to the current owner's plans."

Another key point to consider is transferability. "Can the business run without the current owner? Will it perform under new management? Future company performance can't be completely dependent on current owner," says Durham. "Hire, train and delegate, and create systems that can work for others."

How do you know if your business can be easily transferred? "The best test is to ask yourself, 'if something happens to me tomorrow, will the business survive?'" Durham says.

As you evaluate the transferability of your business, keep in mind how you will handle the inventory. "What are the arrangements with the suppliers?" asks Mulvaney. "If your business is being sold with inventory, the supplier arrangement may complicate the sale of the business, particularly if the suppliers don't want their products discounted."

Though it may seem obvious, don't underestimate the value of a professional store. "Organize the inventory," says Royko. "First impressions are a big deal."

Durham elaborates: "Not only do you need to sell the inside of the store with clean shelves and attractive displays, but you also have to sell its location. Find support for why it's in a good place. Location is everything in retail."

Finally, all the experts agree that finding a broker is crucial to a successful sale.

"I've seen many small business owners, particularly those with less than $2 million in annual revenues, try to go it alone because the 8% to 10% commission scares them," says Mulvaney. "But the truth is that most don't have the knowledge to carry through with the sale without a real estate broker, a business broker or an investment banking firm. Often, the business owner doesn't have time to both run the business and sell it, so all hell starts to break lose."

Not to mention that the third party has no conflict of interest, as Royko points out: "A broker not only knows the market value of the business, but also takes all emotion out of the equation during the sale, which is beneficial to all parties involved."