How to Sell a Business
A Business Owner’s Guide to Selling His/Her Business For Optimal Value
There are only three times in life to sell a business – when you want to, when you are forced to, or when your heirs do.
In any of these scenarios, preparing a business for sale and achieving maximum value takes ample time and planning. An effective strategy is to look at your business through the lens of a buyer. How can your business be set up so a new owner would have ZERO hesitation buying? Top considerations include:
Clean Up Your Books – the valuation will be performed using accrual accounting methodology. The cleaner, the more consistent your financials are, the easier it is for your buyer to understand the true cash flow of your business.
Owner’s Discretionary Income – you own the business, but potential buyers will want to be able to clearly identify add-backs (Add-backs are discretionary or one-time expenses that you as an owner run through your business. Think: Charity donations, your daughter’s car payment, etc.)
Find the “Goodwill” – what is the secret sauce in your company a new buyer would want verse your competitors. Be able to articulate this, and continue to strengthen these differentiations.
Teamwork makes the dream work – Set up the company as if it could operate with you taking a six-month vacation without access to phone or email. Do you have processes? Great. Are they recorded, accurate and followed? Even better. A buyer wants to know you aren’t walking out the door with knowledge none of your team has.
Nail Down the Magic Number – What is the net value that you need from the sale of your business that would allow you to move to the next stage in your career (new company, new start up, retire, etc.)? This is where it’s extremely helpful to engage with a broker or intermediary—they can perform a valuation for you, so you understand where you are, and where you need to be. Then you can share this with your financial planner to get your personal exit planning in place.
De-risk, De-risk, De-risk –If you were to launch your company all over again, how would you alleviate, reduce, and eliminate the challenges and business risks you faced over years? Make a checklist, start crossing off items in the lead up to the year before you want to exit.
The biggest takeaway – Start the sales process early, do not stumble into the sale because life threw you a few curveballs. In an ideal world, we advise business owners to game plan the sale with a five-year time horizon.
For a more detailed, tactical playbook to preparing, marketing, and selling your company, reach out to Exit Equity to set up a free consultation