Selling Your Agribusiness: What to Expect

How do I prepare my business for sale?

Preparing a business for sale is a lot about buttoning down finances and operations, but it’s also about making the business understandable to a potential buyer. There are hundreds of things you know as an owner that are invisible to someone outside the company.

For example, you may have a gut feeling about when it’s time to buy more inventory, or an intuitive sense of when your margins need a boost. For a buyer, all of that needs to be captured as data and backed up with facts. This can take a lot of work, but it’s worth it in the end. Trying to sell your business as-is could lead to it being undervalued, drag out due diligence, or even compromise a potential sale.

Want to learn more about preparing your business for sale? Check out this article by Align Business Advisory Services.

Where do you make your money?

It might seem like an obvious question, but the truth is many owners are often surprised by the answer when they dig into a detailed analysis of their business. Doing that analysis before you engage in the sale process puts you in a confident position to work with a potential buyer.

At Market Maker Agriculture, we recommend creating what we call a ‘business map’: a chart or spreadsheet that looks at each of your products or customers and details the steps involved in making, selling and delivering your goods or services. This includes every input cost (raw materials, labour, freight, etc.), every touchpoint and process step, and why and how customers are buying from you.

The more detail you can document, the more accurately you will understand your gross margin for each product, service or customer. It also helps you — and us — identify any potential risks, revealing anywhere things can or do sometimes go wrong and how to mitigate those hazards.

Readiness Check

  • Implement an accounting package that includes inventory. Have a basic accounting system in place appropriate to the scale of your business (e.g., Microsoft Dynamics, Sage, NetSuite, QuickBooks).
  • Calculate your gross margin for every product or service you sell. This gives you a true picture of your costs and where you generate the most money.
  • Close your books monthly. Many businesses close their books once a year, at year-end. This can leave information gaps, especially for seasonal businesses.
  • Gather a minimum of three years of records. This should include profit-and-loss statements and balance sheets. Again, monthly is ideal. Also have a provable calculation of your annual sustaining CAPEX and a list of your current capital assets (at both book value and fair market value).
  • Sell off any redundant assets. These are assets that aren’t core to your business and might not be included in the sale. Selling them off first gives you cash in hand.
  • Prepare budgets and forecasts. Provide a forecast for the end of your current fiscal year as well as the year following, articulating your assumptions about the future and what they mean financially.
  • Consider hiring a qualified financial controller. This critical role is often missing in many smaller agribusinesses but really helps the due diligence process go more smoothly. A qualified senior controller’s job is to ensure financial discipline and manage financial systems, and should be separate from the person who handles your books and year-end filings to avoid risk of fraud. If you don’t have someone like this in place, our approach at Market Maker Agriculture is to hire for the role at closing.
  • Make sure all functions are covered. Identify the key employees in your business, what they do and how long they’ve worked for you. Note any gaps — functions that will need to be covered off for the business to keep running after you sell. Ensure all employees know their jobs well and the processes to keep the business going.
  • Have a complete, up-to-date employee list and payroll register. Complete records ensure seamless continuity for the business through a sale. As you review your lists, try to gauge who would want to stay and who might want to leave after you sell. Visit our process page for more on when to discuss your intention to sell with employees.
  • Ensure your customers and partners relate to the business – not just you. An owner-operator can often be the face of the business and holder of key relationships. Those personal connections can add risk to a sale, so transition them to people on your team who will be in place after you sell to avoid unnecessary concern.
  • Have a clear and detailed picture of your customers and partners. Know exactly how many customers you have, where they’re located, which are most loyal, and which are responsible for the highest year-over-year sales or costs (i.e., who is most valuable) for the past three years.
  • Diversify if you need to. If you have just a few high-value customers, vendors, partners or suppliers, evaluate how strong each relationship truly is, and expand your base if you can.
  • Have a succession plan. This is not just about having someone in line to take over your role: it’s about knowing how every aspect of the business will be covered off — including business decision-making — once you’re no longer there.
  • Identify the key activities required for your business to sustain its income. Be specific and comprehensive.
  • Define your competitive strategy. This will be important to share with prospective buyers: how you differentiate and win market share.
  • Know your most valuable products and services. Be clear about why they’re valuable and how you determine that value. Identify any future opportunities for growth.
  • Document everything. Have complete information on all aspects of your business from your locations to current inventory levels.
  • Have a complete set of all corporate and legal documents. These include contracts and purchase agreements, patents, trademarks, copyrights, URLs, certificates, operating permits and anything else pertinent to the business.
  • Make sure your corporate policies are complete and up to date. This applies to everything from HR and health and safety to regulatory and environmental compliance.
  • If your company has multiple shareholders, be sure they all want to sell. Even if the buyer is purchasing assets and not shares, all shareholders must be on board with the decision to sell.
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Our focus at Market Maker Agriculture

We require extensive and rigorous documentation when we consider a business to buy — and we ask a lot of questions. It’s our responsibility to ensure all claims, assertions and statements about the business can be backed up with data.

Because we buy seasonal agribusinesses, we need to see monthly financial statements that accurately reflect the ups and downs over time. Ideally, we’d like to see both a financial controller and a general manager (or someone equivalent) already in place, but we recognize this isn’t always the case.

If we need to bring someone in to fill a specific role, we’ll work with you to do that. Our goal is to keep your legacy intact while setting up your business for success as part of our portfolio.

If you’d like third-party help getting your business ready for sale, we’d be happy to connect you with one of the many experts we work with. Get in touch with us today.