By Kim Deas
After working it for more than 22 years, everyone in town knew their business. Surely it was worth a lot of money, right?
Well, after having the business listed for more a year at a what seemed like a steal of a price for such a legacy in this town, there were no offers, no meeting and no sale. What happened?
Sadly, just because a business has been around for a long time and is well known does not mean that it is prepared for selling, priced right or marketed right.
A business owner can put many years, or even decades, of hard work into a business, but if it is not prepared to sell, the owner will likely be disappointed in the results.
Many business owners wait to prepare their business until they are “ready,” and by that time it is just too late. Start answering the following questions now, so that you will be ready when the time does come.
When should I start to prepare to exit my business?
In The e-Myth, Michael Gerber says the only reason to own a business is to sell the business. Although it is a bold statement, it is a true statement. When you build a business with the mindset that you are going to sell it, you build it differently than if you are building it to pay the bills. So when you start your business, start planning to sell it as well.
What should I consider in preparing the business to exit?
Preparing a business starts when the business starts. So here are a few items to consider when starting a business:
- What structure is your business? Selling a C Corporation is far more expensive (in taxes) than a limited liability company (LLC) or S Corporation.
- How is your bookkeeping set up? Are you recording each revenue stream separately? Are you tracking the same items in the same categories each year? Are you reporting all your revenue?
- Have you forecasted where you will be in 3-5-10 years?
Here are some of the leading contributors to value to focus on when building your business:
- Clean books devoid avoid of personal expenses in your business finances
- Accurate reporting across all reports
- The more systems and processes you have in place the easier your business will run without you. As soon as you can, start putting these in place.
- Reporting your income and expenses honestly, paying employees as required by law, etc.
- Scaleable business model that allows for additional growth
- Sustainable business that fills need in marketplace
- Proper contracts
- Long-term obligations
- Fair Market Pricing
- Limited liabilities for the new owner (no Daily Deals, unpaid sales tax or pending litigation)
If I prepare my business appropriately, how much will it be worth?
The way to reduce the shock of learning too late what the business is worth, is to have a business valuation done every 3-5 years. This will allow you to track the value of the business and help you get the price you want.
If I prepare my business appropriately, how fast should I expect to sell my business?
The average business takes 6-12 months to sell. So be prepared once you list your business to sell. Of course those businesses that are priced right sell faster than those that are overpriced. And businesses that require no special skills sell faster than those that require special skills or licenses.
What will a buyer be looking for?
Today’s Buyer want a good business with profit that will allow them to support their family, pay their debt and get a return on their investment. Most buyers want to see more than $75k of profit. Buyers also want to see clean records and future growth opportunity.
Who can help me to prepare?
A business broker trained in exit planning can help you prepare for sale. This type of broker is a business transfer specialist who can work with a business owner and their advisors to both prepare the business for sale and coordinate the selling efforts, including finding buyers, qualifying buyers, coordinating the offer and completing the due diligence process to sell the business.
Murphy Business & Financial Services Inc.