Tips to Preparing 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 that might force you to sell?
If you’re like 96% of the other business owners out there, the answer is a resounding NO.
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 keep your head above water.
Preparing your business for sale is a vital aspect of any business owners’ journey through the lifecycle of their business. Yet, 94% of the time it is overlooked.
According to statistics gleaned from multiple sources, (including www.bizbuysell.com)
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.
It is for this reason that I have written extensively about the typical Business Lifecycle, which is a necessity for business owners to understand.
Why is this important?
In any business that you operate, you need to keep the goal and the end in mind for the business. Preparing Your Business For Sale is a necessary step.
Let’s face it: most people usually don’t know what their end goal is for the business, and thats why so mane of them end up closing their doors.
As a business advisor/broker, I have seen countless numbers of business people who are operating successful businesses and suddenly find themselves out of business.
They get sick, a family member might get sick, or they might lose passion for what they are doing, and the business stops in its tracks.
When this happens, the decision is made to sell and unfortunately it isn’t sellable!
In my experience, depending on management and book-keeping, it can take anywhere from two to three years from when a business owner decides to sell until the business is in a position that is can actually be sold.
This means, if something happens to you and you haven’t planned ahead of time, then you could be left selling a business for a lot less than you thought it was worth, if you can sell it 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!
- Systematize as much of the daily operation as possible.
- Get good help.
- Make yourself dispensable – in another words, make the business operate without your constant daily involvement.
- Tighten up accounts receivable.
- If you don’t have them, create an operations and procedures manual.
- STOP living out of the business – STOP taking write-offs!
In business, there will be a figure that the business owner takes as profit (often called 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.
If you save 30 cents in the dollar of earnings of tax, that is great; but due to the fact that the money is not in the official books, you can lose $3 or $4 per dollar of earnings that you take as cash in the eventual sale price.
I have seen examples where this has cost business owners hundreds of thousands of dollars!
Obtaining the advice of your consultants on all of these aspects of your business is critically important in preparing a business for sale.
You may think that it will never happen to you, but it is important to understand that if something goes wrong, you may have to sell quickly and it is important to understand what you need to have in place.
At Corporate Business Brokers, we offer what we call Business Succession Planning Services and we work with business owners to properly prepare their business for sale ahead of time.