The sale of your business is potentially the most important financial decision you’ll ever make, and many business owners fail to prepare for it properly. According to a Small Business Administration survey, up to 80% of businesses that go to market do not sell or are sold for less than full value.
If you want to realize the best price possible when selling your business, there are things you can do now to set yourself up for a future sale without leaving money on the table.
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Don’t be indispensable
One of the keys to eventually selling your business is to make sure it can continue running without you. Buyers prefer to invest in businesses that don’t have “key man risks”. To head this off, focus on building a strong management team to eliminate reliance on a single high performing individual.
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Sell the future
Buyers aren’t purchasing your company for sentimental reasons. Buyers purchase your company’s future ability to produce income. In negotiations, sell the future, and have your future backed up by the data. Getting a third-party valuation can help you back up this assertion and tell your growth story in the most effective manner possible.
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Reframe past financial data
If you feel your historic financials don’t show an accurate picture of what the buyer may expect, you can try to reframe certain things. Go back to your statements and reframe discretionary or one-time payments via footnotes. These types of things could include personal life insurance, over-compensation to yourself or to family members, and personal expenses that are necessary for company operations.
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Improve your cash flow
One of the main reasons that a focus on improving your cash flow position to increase the value of your business before a sale.
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Have documented policy manuals
Being organized only helps you in the long run. First, it helps avoid confusion and litigation. Secondly, buyers tend to pay more for companies that are professionally organized and documented, because they perceive the risk factor to be lower. Documented procedure manuals and policies such as employee handbooks and safety policies will help in that.
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Identify and quantify all your assets
Not everything that makes your company valuable is on your balance sheet. Reputation and trademarks are both things that affect your sale price. Also, while the book value of some of your assets has decreased for tax purposes, the real value might be higher. Recast these assets for current fair market values.
These are a few things you can do to set yourself up for the best possible sale price when it comes time to sell. Being prepared can help you maximize your multiples and financial outcomes. Starting preparation today will only help you in the long run.
