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Getting the maximum value for your business requires time, preparation, and a team of professionals. If selling your business is on the horizon, begin with the end in mind and follow these key steps. Remember, you're not alone in this process. A team of professionals can provide the support and guidance you need to navigate the complexities of selling a business.
Define goals and prepare your exit strategy: When considering the sale of a business, a business owner has a wide variety of transaction options to sell the business. (e.g., ESOPs, Financial Buyer, Strategic Buyer, or Family Member). A formal business exit plan puts the goals, priorities, and strategies in place and in writing for a successful transition. Without a clearly defined and communicated plan, business owners leave their personal and financial future to chance. A strategized exit plan can help you maximize value and market your business to potential buyers or investors.
Time for the sale of your business: The value of your business is correlated to the market within which it operates – therefore, you should look to sell when market conditions are healthy. If you anticipate growth in the future, wait until the economy rebounds. Also, consider if you are emotionally prepared to sell. Do you arrive at work each day excited to tackle new challenges, or are you feeling irritable and burned out by the business? Create maximum value pre-sale: The number one reason deals get delayed or don't happen is declining financial performance. The value of your business before and during the transition process is vital to obtaining the profit you desire. It could take 12-24 months of preparation before putting your business on the market. To help improve the value of your business, consider strategies to build a diverse customer base, create recurring revenue streams, ensure consistent and healthy cash flow, demonstrate scalability, and show a solid competitive advantage. Analyze your processes and look for ways to increase operational efficiency, reduce expenses, and control inventory without affecting your operations. The goal is to ensure your business attracts many potential buyers.
Determine what your business is worth: A business is generally worth a multiple of its cash flow or EBITDA. However, don't just base your assessment of the business's value on number crunching. Consider the value of your business based on its geographical location, customer base, and industry. Business valuation requires a solid grasp of how value has been created before the valuation date and how it will continue. I will help you gauge an accurate assessment.
Prepare your financials: If you're considering selling your business, it's important to remember that prospective buyers are looking for clear facts and financial records to prove whether it is a profitable investment. Available records include three years of profit and loss statements, current balance sheets, cash flow statements, business tax returns budgets, financial analysis, and legal documents and agreements such as leases, insurance policies, and employee agreements.
Compile due diligence information: When potential buyers evaluate a company, they expect the records and facts to be properly organized and documented. The location of due diligence documents is commonly known as the data room. Selling a business involves many aspects, such as legal, accounting, financial, operations, human resources, etc. Providing business information in a logical, organized format for all buyers helps build trust during the sale process. It can reduce potential buyers' time to complete their due diligence analysis. Be sure you have all the critical documents and records needed in a framework that is easy to understand and reference for buyers.
Assemble a qualified "team": Don't go it alone. If you've determined that your business is ready for sale, save yourself time, money, and frustration by building a trusted team of advisors. These experts can help you strategize, overcome the challenges ahead, and secure the highest possible value—so you can focus on running your business in the interim. Their expertise will give you the confidence and reassurance you need during this crucial transition.
Business Owners can take proactive steps today—no matter what stage the business is in—to create a valuable, sellable company. By taking these steps, you can feel empowered and control your business's future, ensuring it can thrive and sell for maximum value.
If you are ready to start planning your exit now or want to know more about exit planning, contact me. I routinely educate owners, assist in developing exit strategies, and market the company to a successful exit.
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