Selling Tutorial
Is it time to sell?
Selling your business is a major decision!
Instead of trying to pinpoint the perfect moment in the economic cycle, focus on whether selling aligns with your overall goals. It’s true: you’ll always be exchanging one set of market conditions for another.
The key isn’t finding the absolute peak or bottom, but understanding that the money you receive will face the same market realities as your current business. Whether you invest in stocks, real estate, or something else, the market will have its ups and downs.
The true advantage of selling comes from the freedom and resources it affords you to pursue your next chapter. Use the sale as a springboard to achieve your personal and financial aspirations, not as a way to outsmart the market.
The real answer to the question, “is it time to sell my business?” is what is the future you envision for yourself?
For Business Sellers
If you’ve gone this far, then selling your business has aroused enough curiosity that you are considering the first step.
You don’t have to make a commitment at this point; you are just getting informed about what is necessary to successfully sell your business. This section should answer a few questions you might have.
Some will tell you, any business can be sold. Perhaps that’s true but in reality, the owners and businesses that are buyer-ready are the most successful at the end of the process. What is “buyer-ready”?
Almost every owner asks: “What is my business worth?” Quite frankly, if I were selling my business, that is the first thing I would want to know. However, we’re going to put this very important issue off for a bit and cover some of the things you need to know before you get to that point. Before you ask that question, you have to be ready to sell for what the market is willing to pay. If money is the only reason you want to sell, then you’re not really ready to sell. There are multiple valuation methods out there an each will result in the assessors opinion of value – those opinions can vary widely.
Insider Tip
There is one everlasting truth, the value of your business is set by the buyer.
The short answer is yes, but it takes some work and an investment in improving the key value drivers a buyer is looking at. To improve the value of your business you need to look at it, not as the owner who’s poured sweat and tears into what you’ve done in the past, but instead, look at your business through the buyer’s lens. A buyer is considering what return on investment (of their time and money) they can expect from your business in the future, once they take ownership.
The answer to this question is up to you, but what I find is that owners with a vision that’s pulling them into a new chapter of life are most ready and successful upon exit.
To prepare for the process there are several things you need to address to be buyer-ready.
1.) Are you ready to exit your business?
Find out here, get your Personal Readiness score.
2.) Is your business ready for your exit?
Ask yourself: 1.) Does my business have desirable results I can prove? 2.) Could a buyer duplicate those results?
The First Steps
Okay, let’s assume that you have decided to at least take the first few steps to actually selling your business.
Before you even think about placing your business for sale, there are some things you should know first.
The process can take several years to reach it’s conclusion; so, I recommend planning a minimum of 3-5 years ahead of the date you actually expect to exit your business.
You’ll want to begin the process by assembling a team of advisors knowledgeable in business sales and transitions. This team should be asking you about the strategy you wish to follow – what’s your succession strategy? Do you plan to transfer the business down a family member? Do you expect a buy-out (management or partner)? Do you expect to an external third-party? Each strategy has a different execution approach. The advisors on your team can help you work out what might be best for you, the business, and your family.
Your deal team, at a minimum should include: an M&A attorney; CPA or tax advisor with experience in business sales/transitions; Business broker/M&A advisor; and Value Growth coach.
Additional members of the deal team could include: Wealth Manager and Financial Advisor/Planner; Industry experts; other business owners who have gone through the process.
Depending on the strategy you choose, your team of advisors might benefit for the experience of a: Communications/PR person; and even a Family therapist.
Insider Tip: Communicating with your team often, and early is important. For example, your current CPA, helping you with your annual taxes, should be in the loop. The tax strategy they follow may need adjusting based upon your plans to sell the business.
Before you even think about listing placing your business for sale, there are some things you should do first. The first things you need have to do is to gather information about the business include:
- 3-5 years of audited financial documents and Federal tax returns
- List of fixtures, equipment
- The lease and lease-related documents
- A list of the loans against the business (amounts and payment schedule)
- Copies of any equipment leases
- A copy of the franchise agreement, if applicable
- Documented inventory on hand, if applicable
- Status of any outstanding legal issues
There are eight key value drivers that most interest a potential buyer, they include:
- Financial performance
- Growth potential
- Operational dependencies (we call this the Switzerland Structure)
- Cash flow (we call this the Valuation Teeter Totter)
- Recurring Revenue
- Monopoly control
- Customer satisfaction
- Owner dependency (we call this Hub-and-Spoke)
Learn more about these eight key drivers of your company’s value, download this eBook HERE
Obviously, the financial records of your business are critical to the sale of your business, but that’s just one aspect of a buyer-ready business – how it looks and the risk associated with the business are is also important. First impressions really count! If a potential buyer doesn’t like the appearance of your business, the rest of it may never get a chance.
To better prepare your business, work to address the eight key drivers I’ve noted above. If you need help with that I am here to be your partner and guide to building a buyer-ready business you can be proud of and sell when and if you’re ready.
If you have any additional questions or would like to learn how we might be able to work together, start by scheduling an Introduction Interview.
