Selling your Business
Deciding to sell your business may be one of the most important decisions you’ll ever make and probably the hardest. When business is good, your income ample, your work interesting and the future appears promising, you may ask yourself, “Why sell?” Some reasons may be retirement, a decline in health, the desire for more free time, the situation of not having an heir, partner problems, or a decision to relocate. We as humans, have a wide range of reasons to sell which are not always as the buyer sees it.
The right time to sell your Business
Simply stated, the only time a business can be sold for a favorable price that will enable a seller to realize the highest return on their investment of time, money, and sweat equity, is when conditions surrounding the business are strong and the future is promising. When you sell your company, you’re in a position to 108 Strategies For Successfully Buying Or Selling A Business realize at least three important benefits. First, the sale will allow you to eliminate the risk and uncertainty associated with small business ownership. Second, the sale converts the equity and goodwill you presently hold in your company into cash. Cash in itself delivers a third benefit, namely, that you’ll be in a position to pursue new and alternative opportunities in both your business and personal life.
Preparing your company for sale is almost as important as the sale itself. You’ll sell your business only once, therefore you’ll want to plan for it very carefully. Getting the best price for your business is not simply a matter of “driving a hard bargain.” Numerous factors must be considered in addition to your readiness to sell, including the money market, buyer’s interest level, the current profit levels in your trade or industry, how your business is presented, and how the sale is
Preparing the Business to Sell
The first thing you’ll want to do if you’re a business owner contemplating selling your business is to prepare it for sale. Don’t forget, most buyers will be basing their purchase price for your business on a capitalized value of your available cash flow. Your assets such as inventory, equipment, real estate, etc., don’t mean much of anything if your business isn’t making money...
This preparation should take at least a year to maximize the sales picture and minimize the expenses. Most business owners get a little lazy as time goes on, and don’t pay as close attention to business
details as they did when they first started out. Let’s talk about some of the things that you can do to better position your business for sale:
• In the year or two before you put the business on the market, do an aggressive sales campaign to build up your sales picture. Call those old customers/clients and resurrect them as active customers. Run some special sales to attract new customers. The goal is to increase your sales figures without a significant increase in your costs. You don’t take any unreported cash sales out of the business, do you? If so, you may want to stop this practice to improve sales and profits. Also, if you admit to a buyer that you’re cheating on your taxes, how’s the buyer going to trust you?
• The most common area is probably in the expenses. Do you still have your relative on the payroll as a favor to some other family member?
Most good business brokers and appraisers can reconstruct an expense sheet to “recapture” unnecessary but legitimate expenses for the purposes of improving the net profit for increasing the sale price of your business. The seller should take a hard look at those other expenses that could be eliminated.
– Unread periodical subscriptions, unused fraternal memberships, outdated advertising, etc. Some businesses are able to “find” thousands of dollars this way.
– Company vehicles used mostly for personal reasons
– Unnecessary “business” trips to vacation areas for conventions, sales meetings, etc.
– Any other expenses of a personal nature that tend to creep into the checkbook of the small, closely held business
The following information may give the seller some other good ideas on how to position the business for sale:
• Bring your inventory up to date with only good salable merchandise by clearing out old stock through special sales or other incentives. The buyer generally won’t buy tired old inventory, so you might as well convert it to cash. It’ll also increase the revenues for the business which in turn, may improve the overall value of the business.
• Freshen up your accounts receivable by going after those old receivables that have been hanging around. Usually, any normal 30-day account that is more than 90 days old may be a problem. Consider offering the slow paying customers incentives to get their accounts current with you. If you do this during the year before you offer your business for sale, you’ll generate additional revenues that will enhance the valuation of your business.
• As harsh as it sounds, this is probably a good time to take a long hard look at your work force. Consider replacing any problem, high-paid employees at lower salaries, if possible. Are all of the employees really needed? The year or two before you plan to sell is the best time to downsize your work force if it has become out of proportion to your business revenue. Obviously, if the same amount of sales can be generated by a smaller work force, then the business profitability goes up and therefore, the overall value of the business goes up when it comes time for you to sell.