Tips to Prepare Your Business For Sale
Do you know when you want to sell your business?
Can you sell it, if an unfortunate circumstance happens to you?Prepare Your Business For Sale
If you’re like 96% of the other business owners out there, the answer is a resounding NO.
According to statistics gleaned from multiple sources, If you take any 100 businesses and put them up for sale, you will find
- 80 will never be sold
- 16 will sell at a discount of 30%-50%
- 4 will sell at full price or slightly higher.
If you’re like most business owners, you’re doing just about everything you can to keep the lights on, make payroll, service your customers and clients, and make a living.
Preparing your business for sale ahead of time is an important aspect for every business owner to address.
Unfortunately, 96% of the time it is overlooked, and is precisely the reason why only 4 out of every 100 business put up for sale ever sell at full price or slightly above.
It is critically important for a business owner to have an end-goal and exit plan in place the entire time the doors are open.
As a business advisor/broker, I can’t tell you the amount of times I have witnessed successful businesses suddenly closing the doors for one reason or another.
Leaving in their path a trail of shattered careers, broken dreams, and unemployed people.
What usually happens is:
They lose their passion for the business and it stops in its tracks, or they, or a family member suffer a tragic loss, have an accident or gets sick.
When this happens, the decision is made to sell and unfortunately, the business just isn’t sellable in its current condition.
Management is not in place, book-keeping is not in order and expenses ate out of whack, etc.
In normal circumstances, it can take anywhere between 2 and 3 years from the time a business owner decides to sell until the business is in a position to where it can actually be sold.
This means, if something happens to the business owner who doesn’t have a plan in place ahead of time, then they are forced to sell the business for a lot less than it is actually worth, if they can sell lit at all!
During the operation of your business, there are many things that you can do to ensure that your business can be sold for the price that you deserve.
- Keep Clean Books!
- STOP living out of the business – STOP taking write-offs!
- Systematize as much of the daily operation as possible.
- If you don’t have them, create an operations and procedures manual.
- Get and train good help.
- Tighten up accounts receivable.
- Make yourself replaceable – in another words, do whatever it takes to make the business operate without your constant daily involvement.
In business, there will be a figure that the business owner takes as profit – often referred to as EBITDA. (Earnings Before Interest, Tax, Depreciation and Amortization) and a sale price which is calculated as a multiple of that figure.
It is IMPORTANT for you to increase the business revenue as high as possible if you need the money out of the business to support your lifestyle, give yourself a raise and pay the taxes, or at the very least, get a separate business credit card and use it and it alone for your write-offs.
This way, you have an easy to follow paper trail to “add-back” to the EBITDA.
I have seen examples (in high-cash businesses), where this has cost the business owners hundreds of thousands of dollars!
Getting proper advice from business broker specialists is critically important.
Remember: Prepare Your Business For Sale
Accountants are paid to help you save on taxes – not increase business value
Attorneys are paid to keep you out of jail.
Neither of them know much, or anything at all about increasing business value and selling it for top dollar.
You may think you’re invincible and nothing bad will ever happen, and I sincerely hope it never does – but you never know, and it is very important to understand that if something DOES goes wrong, you may have to sell quickly … so prepare your business for sale.
At Corporate Business Brokers, we offer what we call Business Staging Services and we work with you to help you prepare your business for sale ahead of time.