One thing is certain as we exit the pandemic: there has rarely been a better time for business owners to sell and get top dollar for their business. The past two years have seen a sea-change in most industries, and the move to remote work (and the current move back to the office) is motivating many high net worth individuals to think about moving to business ownership.
For business owners, a little preparation and advice from a valuation professional will greatly increase your options to sell and ability to connect with the right buyers. (Spoiler: this is our wheelhouse.)
We see some owners with inflated expectations of what their business is worth, and are disappointed at the value their business commands on the market- because they waited until the last minute to seek professional guidance. We recommend 3-5 years to put in a formal exit plan. The sales cycle is 6-12 months once an owner moves forward in earnest to sell a business. Having a valuation completed early on will help an owner understand their value today and build a work backward plan to reach their desired valuation target in the future.
With this timeline in mind, an owner can position themselves to receive multiple offers. Some of the top tips to drive maximum value include:
- Owners should show financial recovery from 2020. Having numbers back to 2019 levels is always reassuring for buyers and lenders alike.
- Accounting records MUST be pristine, timely, and accurate. Owners should isolate discretionary expenses, and limit any non-mission critical capital spending. This is not the time to be taking out new loans or leasing new expensive equipment.
- Businesses where the owners have strong management already in place are easier to sell and transition to potential buyers. In today’s business climate, companies that have staff with long tenure receive a more favorable valuation.
- Owners need to time the sale/offering correctly. This might mean waiting for seasonal changes or putting in extra efforts rather than “coasting” on the way to an exit.
- Owners should show a willingness to assist in the transition, bridging the gap between current operations and the future road map. An owner who is willing and able to stay onboard to help new owners get up to speed increases a business’s value.
It’s always helpful to take a look at your industry, and see if there have been any sales of competitors or peers recently. Have there been any acquisitions by larger companies or private equity firms? Are your customers, or vendors, making acquisitions to become more vertically integrated? Are any competitors moving into new regions, buying up industry players, to fuel growth? Knowing this landscape can help you position your own business for success in on-going operations, as well as help you understand potential buyers and exit strategies.
Our best advice is to get a valuation as soon as possible. Even if you’re not thinking about an exit for two, three or even even 5 years, you need to know what your business is worth from an unbiased 3rd party. You can then create a roadmap to unlock value potential, and take some of the guesswork out of your own personal wealth management plan whether that is for starting another business, retirement, or estate planning.
Curious about the worth of your business? Give us a call for your free private consultation or to receive our Exit Planning 101 Playbook