This is a Guest blog post from Guillermo Birmingham, CPA, Partner at B2B CFO.
Want to Sell Your Business? Begin with the End in Mind!
At a Glance:
◆ 73 million Baby Boomers will retire in the next several years. 1
◆ Baby Boomers own more than 4 million privately-held businesses.
◆ They employ between 60-70% of all U.S. employees.
◆ 49% of surveyed business owners lack knowledge of the market value of
Selling a business for top dollar is a dream for many business owners. Building and growing a business takes tremendous sacrifice so that one day the Owner can enjoy the fruit of their labor and live a life of comfort and prosperity.
Have you put much thought into what your business would look like the day you retire? Thinking of selling your company someday? Do you plan to leave your legacy to a family member? It all starts with a well-planned and executed exit strategy.
Your objective when selling is to get maximum value. This requires time, preparation
and a team of professionals. If selling your business is on the horizon, B2B CFO® suggests
you begin with the end in mind and follow these key steps:
Define goals and prepare your exit strategy
When considering the sale of a businessa 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 are
leaving their personal and financial future to chance. A strategized exit plan can help
you to maximize the value you get and successfully market your business to potential
buyers or investors.
Time 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. Selling in a down-turned economy is not always advisable. 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 due to declining financial performance. The value of your business before and during the transition process is key 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 strong 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 is attractive to a large pool of potential buyers.
Determine what your business is worth
To find the value of your business, subtract liabilities from the assets. A business is generally worth a multiple of its profit. 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 your industry . Business valuation requires a solid grasp of both how value has been created prior to the valuation date, and how it will continue in the future. An expert in business valuations 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 on your business to prove whether it is a profitable investment for them. Some records to be sure to have on hand include: two years of profit and loss statements, current balance sheet, cash flow statement, business tax returns, copy of the current lease, insurance policies, and employee agreements to name a few.
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. There are many aspects of selling a business to consider such as, legal, accounting, financial, operations, human resources and much more. Providing business information in a logical, organized format for all buyers not only helps build trust during the sale process but can reduce the time it takes a potential buyer to complete their due diligence analysis. Ensure 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. Research their qualifications, track record and experience. In order to get the highest value for your business and to negotiate the selling process effectively and efficiently, it is imperative that you enlist qualified professionals that you can trust with confidential information. Experts that can help during the transition include an accountant, CFO, tax expert; lawyer; business broker; business appraiser/valuation expert; and banker or other financier, if third party funding is needed.
Guillermo can be reached at firstname.lastname@example.org. B2B CFO® provides Management Advisory Services to owners of privately held companies. We focus on increasing cash and company value. Our services include improvements in finance, accounting and operations, company growth, as well as helping owners to transfer or sell their companies. Our professionals work directly with business owners, on-site. Each of our 200+ professionals is an equity owner and brings 25 plus years of senior-level experience. With a nationwide presence, B2B CFO® is the largest company of its kind in the United States. Founded in 1987 and headquartered in Mesa, Arizona, B2B CFO® has ranked in the Inc. 5000 and was recognized in 2018 as one of Forbes Magazine’s “Small Giants.” For more information please visit www.B2BCFO.com.