Prepare Your Business to Sell
With the right exit strategy, you can maximize the value of your business.
ABI is uniquely positioned to provide superior advisory consulting to small business owners in the Bay Area. By working with us, you can be assured that no money will be left on the table when you sell your business.
How Do You Prepare to Sell Your Business?
Selling your business can take 6-12 months from start to finish. As you begin to evaluate this process, here are some valuable insights that can guide you.
- Get Organized
- Because buyers typically want to see at least three years of complete and accurate Profit & Loss Statements and Balance Sheets, you should maintain organized business records such as sales and expense reports and tax returns.
- Hire a CPA to review your books – poor financial tracking presents more risk to potential buyers and thus reduces the value of your business.
- Document all job descriptions, operational processes, and strategic plans. Documented records and plans allow buyers to emulate your successful growth and will help them obtain financing.
- Your inventory must be both current and salable. If you have stale inventory, sell it, give it away, or simply throw it out! Inventory value often provides a contentious point with potential buyers.
- Remove or buy off any assets that are primarily for personal use.
- Develop Key Employees (Management Succession)
- Buyers generally will not pay a premium if your business relies solely on you for its success. It is critical to delegate responsibility to key employees and involve these staff members in the decision-making processes. Demonstrating that your company’s success relies on your capable, well-trained employees – not just you – will pay off at the time of sale.
- Identify True Expenses
- Most, if not all, small businesses have a fair amount of expenses that are widely considered discretionary. These items may include your personal vehicle, a family member on payroll who doesn't work for the business, or non-recurring expenses such as start-up costs or one-time legal fees. Buyers will view these items as discretionary when projecting your business’ post-acquisition cash flow.
- Identify Value Drivers
- What makes your business unique? Analyze these factors and work diligently to develop them. Examine them from a buyer’s perspective.
- Clean Your Facilities
- The appearance of your business is extremely important – a neglected facility can compel Buyers to walk away from a deal or make low-ball offers. You never get a second chance to make a first impression.
- Get a Valuation
- Use a certified business appraiser or a business broker to obtain a realistic idea of what your business is worth. Do not use a CPA or attorney – they do not have the specific expertise and knowledge to determine a true fair market value for your business.
- Allow Enough Time
- Between advertising, negotiating, and closing, a business sale can take up to 12 months. Make sure you have enough time for the process as you might risk a lower valuation and sales price if you are rushed.
When Should You Sell Your Business?
The best time to sell is when your business is growing and you are under no time constraints.
You only have one chance to sell your business. Start preparing well in advance and consider lining up key specialists as early as possible. Above all, don’t burn out psychologically and retire early, before a sale is made. It is critical to keep your focus until the sale is complete.
Check out Advisory Consulting from ABI Business Sales for assistance with creating an exit strategy and increasing the value of your business.
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