Last year brought record-breaking transactions in business-for-sale activity according to this BizBuySell Insight Report. We expect this trend to continue over the next several years as more baby boomer business owners look toward retirement options. For those considering selling a business now or in the next few years, it pays to be prepared.
Here are a few basic steps that are essential for business owners to take now to get the possible price in a sale.
Take time to organize both your present space and your current documents. Does your office need a quick refresh to be more appealing to a buyer? Make sure things are neat and orderly here too. Then, review your most important documents so they are readily available, current and in order. This includes:
- Incorporation papers, permits, licensing agreements, leases, customer and vendor contracts, etc
- Business Financials – at least 3 years worth and the more formal they are the better
- Employee job responsibilities and performance indicators
Even if you are feeling burnt out, now is not the time to let business performance decline. Prospective buyers want to see potential growth plans, expansion opportunities and any other exploits they could capitalize on themselves. If your business starts to slow once you put it up for sale, this gives buyers more negotiating power. Instead, provide them reasons for an enhanced perceived value by showing them a strong plan for the future.
Are you vital to the operation of your business? If so, map out a succession plan before putting it up for sale as business that are highly dependent on owners are less valuable for buyers. Also be prepared to outline your overall management structure, product pipeline and sales and marketing processes. Now’s the time to address employee motivation or performance issues.
It is generally wise to keep the sale of the business confidential, even from most employees. Employees, vendors, and customers may all react skittishly and that could have a negative outcome on the business. Most sales are kept private and allow for a smooth transition plan to be established and communicated to alleviate fears.
Get A Business Valuation
It’s important to secure a realistic understanding of what your business is worth from a third-party, objective source. This valuation provides you with a gauge for potential offers from buyers and give you perspective on what your business is worth. It should not just be based on what your needs for retirement or on what a similar business sold for; you will need expert advice to set your price.
There are multiple variables to consider within a valuation and various sources from which to obtain one. Typical valuations are profit-based, revenue-based and cash-flow based. An experienced business broker will want to see at least three year’s worth of business financials to account for all income. Infrequent expenses and non-operational expenses should be excluded. Tax returns and financial statements are usually sufficient.
Start with a financial advisor for help planing your financial future. Consider your long-term needs and be sure you understand your personal (and potentially corporate) tax situation. Then, begin interviewing business brokers who can represent you and help you through the selling process. They can often recommend attorneys and accountants who are proficient in mergers and acquisitions as well.
The completion of a sale is a complex process that can take up to a year to finalize. By taking steps in advance to prepare your business, you can set yourself up for a smoother experience and a better sales price. If you’d like a free business valuation for your company, contact us today for a confidential review.