Ready to sell your business
Are you ready to sell your business but what is next? By its very nature, becoming a successful business owner can take many years.
The reasons are obvious and include defining and refining a service or product the market is willing to pay at a price you can make a profit. To get this worked out you need to bring together the different and diverse skills such as sales and marketing, operations, accounting and finance, management including the need to meet all the new laws and overhead that comes with managing employees and the constant changes from new technologies.
Because of the time, money and energy it takes to keep a business going, not a lot of thought is given to the process to step out of owning a business. What is not known until you do the research is that about 15% to 20% of businesses are up for sale but that only about 1 in 5 of those businesses will actually sell.
The reasons the businesses do not sell are many and varied. Reasons include the business being sold at the wrong time of the economic cycle. A business that sells new autos over the last two years has been almost impossible to sell because of the restructuring in the auto business. Another reason is that business owner’s price expectations are too high. Over recent years, the banks have not been lending to business buyers for acquisitions. In addition, business buyers used to use the home equity in their house as a down payment to buy a business but with the value of homes declining, that option dried up.
Ready to sell your business?
If selling your business is now becoming something you are seriously considering, here are three suggestions for you.
Suggestion number one is that from now on, look at the decisions you make and how you operate the business to include the perspective of a potential buyer. Notice the appearance of the business, how the phone, emails and other communications are answered, the quality and accuracy of the financial statements, the good and bad you hear from your employees, customers and suppliers. You may not have noticed things in the past or didn’t have time to “do things better,” but there have been signs and signals all around you and now it is time to pay more attention to them.
Suggestion number two is to get out those financial statements I mentioned above and start paying a little more attention to them. This is very simplistic, but most business buyers will not take a second look at a business if it is not cash flow positive and the potential of the business is positive.
Cash flow is critical to a buyer and it needs to be consistent. With cash flow that has been consistent for at least 2 or 3 years, the buyer rationalizes they can fund their personal lifestyle, borrow any money and service the debt and keep a little in reserve in case something doesn’t go as well with the transfer of ownership or the economy gets a little worse.
With the above background, look at your financial statements to better understand every expense. If you claim items to reduce your tax that are not true business expenses, isolate them so you can point them out to the buyer. In addition, report all your income. The price a business sells for includes a multiple of net profit. If a business earns $100,000 per year and sells for $250,000 that means every one dollar of revenue you report, it will come back to you in the purchase price 2.5 times greater.
Andrew Rogerson specializes in helping business owners sell their business. If you would like a free 127 point Business Transition Checklist and to sign up for Andrew’s free newsletter click on the following link and enter your email address http://www.rogersonbusinessservices.com/sell-or-buy-a-business-free-documents.
Are you thinking about selling your business? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.
For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.