Thinking of Selling Your Business in the Next Few Years?
Then You Should Get to Work Now.
While running a thriving business, sellers often don’t think about the ultimate end-goal of selling their business for as much as possible. However, a “successful” exit takes years of preparation and only those who take the proper steps will receive the highest value for their business.
The objective of early preparation is to minimize future deductions from the purchase price during due diligence. In our experience, we have never seen a purchase price increase during due diligence. It’s often quite the opposite scenario.
Here are a few things to consider if you’re preparing to sell within the next few years…
Increasing Desirability & Decreasing Risk
Buyers have their own objectives in mind during the sale process– a common concern for buyers is the struggle to replace the seller and the risk of losing sales during the transition. Often buyers will ask how reliant the business is on the seller or their relationships. The less reliant the business is on the owner, the more desirable the business becomes to the buyer.
Ask yourself, is it possible to step away from the business for a week or so? That is often referred to that as the “Vacation Test.” If the answer is no, it could be valuable to implement management and structure for the business to ensure the business continues to grow while the owner is away. There is value in an experienced team and there is even more value in a business when the business can be ran semi-absentee or even completely absentee.
Financials & Transparency
Commonly buyers request the past 3 years of financials to better understand the sales trend and growth of the company. Buyers tend to gravitate towards businesses with consistent year-over-year growth or a business where the sellers have an understandable explanation for the decline in sales. The financials commonly requested to be reviewed during due diligence are the annual profit & loss statements, tax returns, sales tax returns and POS reports. The financials need to be clean, organized and transparent- meaning returns and reports match what the business is representing and the seller is willing to assist in tracing revenues and expenses, if needed. Transparency is key and it increases the buyer’s confidence, which in turn increases the business value.
Growth Potential & Scalability
It is an added value when sellers clearly display a direct avenue to growth. Often the buyer enjoys when the seller shares unpursued ideas of increasing revenues, and/or even discussing avenues that have been explored however not taken full advantage of the potential.
Another desirable feature for buyers is having the infrastructure in place to scale the business. That includes implementing the processes and procedures to maximize output. A buyer is looking for attainable growth without investing a large amount of capital.
After spending a lifetime building a business, it can be difficult to think about the next chapter. However, it is important to maintain focus on the original end goal and how this transaction will change your life. Selling your business does not mean you will never work again. We often assist sellers with a transition where an owner sells one business to purchase another business in a completely new industry.
Most business owners will only get the chance to sell their business once in their lifetime, so it’s important to maximize the chances of success by preparing for the sale from the start.
We make selling your business our only business and that’s why we’ve successfully closed thousands of transactions over the years.