Have you been wondering if it’s time to think about selling? If so, then it’s probably time to turn thinking into planning.
There are two main reasons that small business owners decide to sell.
CASH IN – the business is performing well, and the owner believes the values are high enough to warrant selling.
BURN OUT – the owner has more exhaustion than passion for their business and wants to escape the daily grind.
Whatever your reason, if you want a good price you are going to need to allow at least two years to get your business ready for sale. So if you’re starting to feel tired, or you have a sense it might be a good time to take the chips off the table – listen to that voice in the back of your head and start planning for sale.
You can always change your mind if you suddenly find new depths of passion and energy. But if you sell for less than your business is worth due to poor planning – you can’t get back that lost value.
Instead of focusing on whether your do or don’t want to sell, focus on what selling might look like. Here are some new questions for you to ponder.
How has your business been trending over the last 3-5 years?
Obviously you are going to get a higher price if your business sales and profits are growing strongly. A business with flat line results can still sell, depending on the potential and synergies perceived by the buyer. But a downward trending business is going to be very hard to shift.
If you are considering selling in the next 2-3 years, then you will want to consider ways to make the numbers look good to a potential buyer.
Are the fruits of recent initiatives reflected in your results?
Buyers hate risk and they don’t want to pay for maybes. Sometimes big initiatives can take years to reap rewards. If you are in the midst of such an initiative then you will want to time your sale carefully. The buyer needs to see results before they will bet on the upside.
How clean are your books?
It is standard practice to recast financial statements to account for discretionary expenses run through the business – things like an owner’s compensation, personal automobile and insurance etc. But the buyer may not accept unreported cash or pushing revenue from one year to the next. You should aim to maintain a completely clean set of books for at least two years prior to sale.
How much is your business reliant on you?
If business results are primarily reliant on your personal efforts and relationships then the majority of the goodwill rests with you. A buyer is not going to pay for goodwill that will walk out the door when you leave. Having a strong management team and internal systems in place can make an enormous difference to your business price.
Who will buy your business?
How and when you sell may depend on who you want to buy your business. If you plan to sell the business to a family member or an employee, then you need to consider the time and resource required for that person to gain the necessary experience.
If you aren’t sure who you will sell to, then ask yourself who might benefit from owning your business. This may affect how you position your business for sale.
What’s the opportunity cost of not selling?
At the end of the day, the decision to sell your business is a very personal one. We suggest you think about the opportunity cost of NOT selling your business. Obviously running your business uses an enormous amount of your limited personal resources: time, energy and capital. To understand the cost of NOT selling, consider what you could achieve if those resources were committed elsewhere. Could you start another business; spend more time with family; travel; enrich your education?
If the thought of selling has crossed your mind, please give us a call. We can help you to identify the key levers that will secure the best possible price.
Also, check out our podcast Sell Your Business for Big Bucks for some more thoughts on maximising your sale price.