Less than 25% of small businesses ever sell. Engaging an exit planning advisor can be the difference between liquidating and maximizing the after-tax return from the many years a business owner has invested in building and running the business.
So, you are going to realize some or all of your investment in your business… now what?
Any business owner must consider the implications of selling a business at some future point. And it is best to be completely prepared. Even if you do not expect to sell your business, you should create a plan for that possibility. And you should also know what proceeds you could expect to generate were you to decide to sell your business right now. That plan will give you all the information that you as an entrepreneur need to evaluate all of your options.
If you're thinking about selling your business, it's best to plan ahead and create a company that will be truly appealing to a potential buyer. The process of taking a bit of extra time and effort to dust off your systems and bookkeeping will pay off handsomely by adding to your company's appeal and value.
1. Catch up on your bookkeeping. The first question a potential buyer will want to ask is how much money he'll be able to make by owning and operating your company. The more complete and clear your records, the better he'll be able to answer that question.
2. Discuss your business sale with your landlord. If your company depends on a particular location or you have made expensive leasehold improvements, a potential buyer will want to know that he can keep the business where it is. Ask to put a clause in your lease establishing that it is valid even if you sell your company, and make sure that your landlord is on board with the terms of your potential sale.
3. Write an employee manual. If you're selling a business, it's important to create a document that a subsequent owner will be able to use to train employees. A training manual puts this information into a form that he will be able to use to hire new employees and train them in a manner consistent with your current systems and policies.
4. Write a business plan. Even though you're getting ready to move on, a business plan will provide a road map for a new owner, and show him your company's potential as well as the milestones you have already achieved.
5. Judiciously involve a few key employees in the sale process. If the value of your company is tied up with their expertise, a potential buyer will want to know that they are on board with a business sale.
6. Evaluate your systems. The better your systems, the more they will work to your advantage in the process of selling a business. Make sure company operations are smooth and efficient. Measure outcomes and, whenever possible, work to improve them.
7. Take a vacation. Although it's not a great idea to go away for an extended length of time if you're planning on selling a business, a brief vacation will provide you with valuable information about how well your company functions in your absence.
Building a business is an enormous investment. It is not just monetary, but an investment of passion and tremendous amounts of time and effort. When the business is near the peak of success, why not look at cashing in on that investment?
There are seven good reasons below to look into selling a business now. Buyers exist who have various reasons for investing in an established business.
It takes preparation, commitment and advice from trusted adviors to hone a business into something that shows a buyer the potential future value of what has been built. Depending on the size and type of business some or all of these reasons may apply.
- Consistent growth: If the business has weathered the economy well and shows gains for the past three years, it is a desirable business. Buyers are looking for a sound investment to step into. Revenue increases indicate a secure growth potential.
- Expanded customer base: A wide customer base indicates a solid foundation. A business that has recently shown success broadening its base is much more attractive. A business that is penetrating new markets shows an attractive future for the buyer.
- Victims of downsizing: Senior executives who have lost a job are looking for their own business. They are experienced business professionals and want something they can manage that offers a more secure future with low risk.
- Business investors: There are investors looking for growth businesses to resell at a later time. They want to further develop the business and enhance its value to sell at a profit.
- Family owners: Families looking for solid business opportunities. They want to spend more time together, eliminate long commutes and have an income that does not rely on separate jobs and locations. An established business with solid profit margins offers just what they want.
- College graduates:Recent marketing or business graduates see better futures for themselves in their own business. They want to enter a stable business and put their education to good use to build their financial independence.
- Diversification: There are current business owners who want to diversify. Selling a business that is solid to another business owner can increase their income and help them weather storms if their current venture has slowed.
The market is attractive for many buyers. Selling a business now can bring a premium price if the owner is well prepared. Preparation to make a business more attractive should start now. Making the business as attractive as possible increases the potential for selling a business at a peak profit.