Can You Afford to Sell Your Business?
One of the most valuable services we provide to prospective sellers is a Broker’s Opinion of Value (BOV), and also helping these Sellers understand what they will likely net from the sale of their business. In many instances, our BOV does not meet the expectations of the Seller for what could be a myriad of reasons. Sometimes the Seller will go back to the proverbial drawing board to try and figure out what they need to do in order to make their business more valuable. In other instances, they may suggest that we need to get them a higher price for their business that is more in line with their initial expectations.
As tempting as it may be to take the Seller on as a customer, the fact of the matter is that the business is only worth what it will bring on the open market and what a Buyer is willing to pay. At the end of the day, we cannot make a business worth more than the open market will pay, no matter how much the seller needs to walk away with a higher net.
This all to familiar picture we have painted is often the result of unrealistic expectations, lack of proper exit planning, short sighted behavior, and other countless possibilities. Some of the ways that we try to work with Sellers to increase the value of their businesses, and ultimately how much they will net, include the following recommendations:
- Clean up the business’ books and records, if not already in that state.
- Have a periodic valuation done on the business.
- Determine how much money you would walk away with once you have deducted estimated taxes and fees.
- Determine how much money you will need post sale to maintain the lifestyle of your choosing. Will you have enough at this price?
- Get out of the tax avoidance mind set by limiting the profits of the business.
- Minimize the personal expenses that are paid through the business and consider how you will replace these Seller’s Perks post sale.
- Work to reduce the Seller’s involvement in the business.
- Implement documented policies and procedures.
Like most Sellers, when the day finally comes to sell your business, you are going to want the highest possible price. You have spent years building it and likely have a value in mind based on a number of factors. Keep in mind that the marketplace will determine the value of your business, and the better prepared you are before that fateful day comes, the more likely you will be able to afford to sell your business.