5 Tips In Getting The Most Out of Your Business When Selling It
Selling a business is often a painstaking decision that can lead to a complicated and time-consuming process. However, as many business owners have up to 90% of their net worth tied up in their company, it is essential to get as much during the sale as possible to help set you for retirement. If you have plans to sell your business, consider the following 5 points to get the most out of it during the sale.
Understand That Timing Is Important
For many types of investment, professionals advise against the folly of trying to perfectly time entry and exit. However, selling a business is an exception in which proper timing is extremely important in maximizing value.
While some buyers may be looking to purchase the businesses for their passive growth potential, the majority will need to use the business as an income stream. Therefore, businesses that are well-positioned to capitalize on a growing market and are set to see increasing profits for the foreseeable future will command a premium price.
A recent example of the importance of timing your business sale came during the height of the COVID-19 pandemic in 2020. With the economy slowed to a standstill and many businesses relying on government support to stay afloat, some business owners panic-sold the business they spent years building for pennies on the dollar.
In order to perfect the timing of your sale, it is critical to give yourself plenty of time for the ideal buyer and market conditions to come along. Understand that only 20-30% of businesses put on the market will actually sell, so do not paint yourself into the corner of needing to sell immediately and being forced to accept the first lowball offer that comes along.
Perform a Detailed Review of the Business
Many business owners use income from the business to fund their lifestyle, pulling enough money to take care of their wants and needs and then letting the business handle itself. However, potential buyers are going to want to see a more meticulous breakdown of where each dollar and cent is going.
In order to paint the business in the most favorable light possible and demonstrate how the business is operating at optimal efficiency, consider the points in the following selling a business checklist:
- Have a professional CPA review all financial documents and prepare them in accordance with GAAP accounting principles
- Describe a plan for collecting bad customer debts
- Make all tax documents from at least the past three years readily available
- Provide professional solutions for any missing documents, such as missing meeting minutes, undocumented policies, or non-existent job descriptions
Receive a Professional Valuation
Building a business over years or decades likely represents your life’s work. As such, the sentimental value of the business can skew your objectivity. However, it is this objective figure that is going to carry weight with prospective buyers.
As a result, it is critical to hire third-party professionals with extensive experience in how to value a business to help you come to an accurate figure when putting a price tag on your company. The business valuation process may include input from business brokers, accountants, attorneys, and wealth planners. Some factors that will influence the recommended price tag of your business will include:
- Earnings before interest, tax, depreciation, and amortization (EBITDA)
- Capital expenditures and net income
- Profits vs. cash flow
- Trends in profits and market share
- Structure of the proposed sale
Make a State-of-the-Art Website
Detailed documentation and meticulous financial records are essential in giving buyers the confidence to pay top dollar for your business. However, there are also the more subjective qualities of owning a business that can give them the emotional push to pull the trigger on the purchase.
With the rapid shift to e-commerce, your business’ website is now the primary storefront. Having an attractive, navigable online presence is the first impression that businesses will make in 2021. If potential buyers can view your company website as the ideal landing place for capturing clients, they will be more willing to match your price tag.
Avoid Unnecessary Risks
Although it is important to branch out and expand your business as it grows, trying new ideas right before putting your business on the market is probably not the best way to maximize valuation. While opening additional branches or offering new products may one day make your business more profitable, there is also the chance that, if not executed correctly, they could end up cutting into the business’s bottom line.
Buyers want to know exactly what they are getting when they purchase a business. Therefore, it is best to shore up all aspects of your existing operations and solidify yourself as a leader in your particular market niche. If there is room for growth, buyers will recognize this and it will be included as part of the business valuation.
How to Get the Most Out of Your Business Before Selling
Owning a business represents the life’s work of many professionals. As a result, it is paramount to get top dollar during a sale. To help you in this regard, consider the 5 aforementioned tips that will allow you to get the most out of your business when selling it.
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