The Right Time To Sell
This is one of the top mistakes that people make when selling their business. They wait until it is on the decline, and then they decide it’s time to find a buyer. In order to get the best valuation, you want to sell when your business is at its peak.
How Is A Business Valued?
There are several ways to value a business, and what technique is used can vary depended on the industry, local practice, and each particular circumstance. However, in most circumstances, a buyer is going to look at how profitable a business is. A lot of business owners, particularly in small family owned businesses, make some choices that can majorly affect this aspect of their business. Expensing personal costs is a very common action that can have detrimental effects on your business valuation. For example, running all of your household automotive expenses through the business may seem like a good idea, but it will have an effect on your bottom line profits. When a potential buyer is looking at your books, it will look like the business expenses are a lot higher than they might really be. Another problem that is common with small business owners is hiding cash income. While it may seem like a good idea when you are doing it, it can have a huge impact on the value of your company. A buyer can’t base your business valuation on hypothetical unreported cash income.
Who Do I Need To Help Me Sell My Business?
Many people try and sell their business themselves, but unless you have experience in buying and selling businesses, you probably aren’t going to get the best valuation. The first step is to recognize your own weaknesses. If you aren’t great at accounting, you should bring on an accountant. If legal contracts aren’t your strength bring on an attorney. In many instances, it will benefit you to talk to a business consultant and see what they recommend in order to increase the appeal to a buyer. Often times, bringing in an outside set of eyes will catch things that you may be overlooking since you are there every day. You want your business to be in tip top presentable shape before you start showing it to potential buyers.
How Do I Make Sure I’m Ready To Sell?
In most cases, a buyer is going to want to see at least two to three years of tax returns before they purchase a business. You want to make sure that these returns show your business in its best light. Hopefully profitability is increasing, sales are stable or increasing, and everything is provable, reported, and solid.
Is The Market Right?
Hopefully, you are in the position where you are choosing whether you want to sell or not. If you are trying to decide if it is the right time to sell, do some research. Call some local business brokers and ask them how your industry is trending. With all of the online resources and data centers, they should be able to put together a presentation showing business sales in your market, and let you know where they are at compared to a few years ago. This is another reason why it’s beneficial to sell when your business is doing well. When the market is hot, your type of business is likely to be in higher demand that a business in an industry that is declining.
Skeletons In The Closet
Are there any deal breakers hiding within your business? If a potential buyer comes in and there are unresolved issues, like an ownership dispute, or a dispute over intellectual property, you are likely to scare them away. Make sure that any issues are resolved before you put your business up for sale.
Are You The Hub Of The Company?
A business that cannot operate without the owner on a day to day basis is going to be difficult to sell. While it is good for an owner to be involved and manage operations, the business needs to be able to operate while the owner goes on vacation, or in this instance, when a new person steps into that position. If your company is totally dependent on you, consider hiring an employee to take over some of your responsibilities, or begin delegating to other people in the office. It will give you a little relief, and make stepping into your shoes less intimidating to prospective purchasers.
Will I Stay On For Training?
If your company is complex or specialized, it may be very attractive to a buyer to keep you on board to help with the transition. Changing ownership can be a scary and difficult time. Having the option to work hand in hand with existing management for a substantial amount of time can help minimize the negative effects of that transition. Additionally, if a buyer isn’t well versed in the industry, it can be a huge benefit to them to learn from your experience.
What Am I Going To Do With The Money?
This question is important for a few reasons. Typically, when business sellers are asked if they would consider owner financing, the knee jerk reaction is to say absolutely not. However, when asked what they are going to do with the money, most of them say they will go put it in the bank. Now taking that into consideration, a bank will pay very minimal interest, 1% at the most. If you consider owner financing, you are likely going to make at least 6% on the amount that they owe you. If your business can support the debt service, and the buyer has strong credit, it may be very beneficial to you to at least consider this option. It helps boost buyer’s confidence because they see that you are confident that your business will be successful, and it may increase your return on cash that would otherwise be sitting in the bank collecting dust.