You Will Eventually Transition Out Of Your Business
Over the past decade many entrepreneurs have been fulfilling their life-long dreams of becoming business owners, while others have determined that it is time to sell their businesses. No matter what category you fall into, there are a number of things that you should consider as a business owner that will help you out in the long run, when it is time to eventually sell your business. Depending on where you are in the business ownership cycle, you might be thinking that selling your business is so far off in the horizon that we don’t have to worry about it for years. You might be years away, but you need to keep in mind that there will be a time in the future where you will have to pass your dream along to someone else – and sell the business that helped you raise your family and put a roof over their heads.
Whether you are selling your business because of burnout, retirement or the desire to move on, when the time arrives to sell your business, do it right in order to maximize the sales price. Many sellers quickly realize that the selling process does not always give them the flexibility needed to make an optimum deal – in most cases because they didn’t do enough advanced planning. You don’t need to fear, or go through the sales process alone as you can mitigate many of these potential pitfalls by starting to plan for the sale of your business years before that fateful day is upon you. By starting early, you will be able to identify the important elements of the sales process and have some level of control over them. Preparing to sell before you move forward will help you better understand the business transaction, your needs as an owner, and better position you to develop a strategy to make it through the sales process.
There are nearly infinite possibilities, both good and bad, that you will go through during the sales process. We have identified five common obstacles in the sales process that you should consider (remember that this is just a small sampling). With each one, there are some helpful tips that will assist you in understanding the process better and successfully selling your business. These obstacles are:
- Position your business for sale. The day you purchase or start your business is the day you should start positioning your business for sale. You might not think so, but thinking about building long-term value in your business is just as important as making money in the short term. You want to maintain detailed records of finances, permits, licenses, equipment and inventory throughout your ownership. These records will be critical when you are trying to sell your business, so don’t neglect this part.
- Determine a fair listing price. There are many methods you can use to price your business. The most common method includes a multiple of cash flow – normally, 1 to 3 times the annual cash flow, depending on the type and size of business. No matter what method is used, you need to be aware that there are many factors that contribute to the pricing of your business, such as; financial terms, risk, non-compete clause, quality books and records, and future potential.
- Running your business during the marketing period. Just because you are planning to sell your business does not mean you can neglect the operation of your business once you put it up for sale. You have to continually attend to the business and not place too much time and effort into the selling process. If you do, your revenues will likely fall, which will impact the resale value.
- Finding a qualified buyer. Not every potential buyer is qualified to own or operate your business. For every prospective buyer, you must examine such things as; their capital and sources of the capital, motivation to buy, needs and expectations, and background and skills.
- When to consider selling your business. The right time to sell your business will vary from one owner to the next. Thinking and planning the sale of your business before you decide will be much more satisfying and profitable; whether it is when the business is doing well, in a non-seasoned trend, hitting its peak of growth, deciding it is time for retirement, etc. This question can only be answered by you.
