Selling Your Business: Start with the End in Mind
Preparation is an important key to getting the most for your business. In the months and years before you sell, the best thing that can be done is to keep very good records.
Before you know it, there will be thousands of baby boomers trying to sell their businesses. But a huge issue will loom: too few buyers. This will in turn create a buyer’s market, in which only about 20 percent of these businesses are expected to sell. And those fortunate few will have pristine records and stories to match.
If you find yourself in this tsunami of businesses about to hit the market, there is a strategy to guide you to a successful sale.
According to the Small Business Administration, “The truth is that many small business owners have no exit strategy for their businesses in the event of their disability, retirement or death. Given the current economy, it isn’t surprising small business owners focus their energies on business survival, future growth, and even remaining active in business after retirement. However, a business exit strategy not only means having a plan for the unexpected–including financial hardship, injury, disability and even death–it also means having a plan for the succession or transfer of ownership of your business when it comes time to hang up your hat and retire.”
Joanie Gable, a partner with B2B CFO®, a Certified Business Transition Expert™ and one of the few women in the country who specialize in “exit strategy,” says selling your business can be “a glorious occasion…something you have looked forward to from the very beginning. But for others,” she says, “it can be a painstakingly difficult and emotional divorce of sorts, and when it’s all over, you may enjoy a honeymoon period with lots of quiet and alone time. But there may also be an empty feeling of loneliness. Knowing what to expect can help either type of business owner.”
You should be prepared for endless probing, seemingly intrusive questions and the resulting emotions they are surely apt to bring out in every business owner. The best preparation, according to experts, is to know that the process will take much more time than you can ever imagine. A potential buyer may court you, the seller, and everything feels just right. Suddenly, the dating is over and the buyer presents a due diligence checklist of 200-plus questions, everything from documents to prepare and locate, to answers to everything you and your employees know and do or plan to do.
Suddenly, those good feelings could plummet. You may feel as if the buyer is snooping into your business beyond a reasonable expectation. It is important for you to realize that this interrogation is ultimately worth lots of money to you. Gable says, “It is only a business deal, not life or death, not theft or murder, just business questions for a buyer to know if they want to take your valuable asset and make it their own.
“This is a time to be proud, stand tall and embrace the beauty of what you have built. Someone wants to hear your story, so make it good,” she adds.
Preparation is an important key to getting the most for your business. In the months and years before you sell, the best thing that can be done is to keep very good records. All legal documents, board minutes (be sure to hold regular board meetings; these are necessary to confirm corporate status), customer files, financial records, employee files, etc., need to be kept in a transferable state. This will save valuable time and unnecessary frustration down the road. Your company’s financial information must be accurate, prepared regularly, easy to understand and audited or reviewed, if necessary.
One of the most common errors made by business owners is engaging in “under the table” money or transactions. Imagine you are the buyer and make the necessary moves now to eliminate any red flag material that could pop up during due diligence.
As the time approaches to begin the sales process, it will take a team. Normally, the people involved consist of you, your staff and your professional advisors such as your banker, insurance agent, wealth manager, CPA, tax advisor, legal counsel, CFO and other key people involved with your business continuation. The team will help you navigate the many requests and requirements involved with a successful sale.
According to the SBA, “Before you embark on your exit strategy, be sure to engage your lawyer and even a business evaluation expert. That way, you will be sure that you have explored all the options available to you.”
During this time, it is critical that you continue top-notch service to your customers, increase sales and profits and keep the business moving forward and upward. Any slip or sliding momentum or profits will be a huge deterrent to a prospective buyer.
A skilled professional in the art of business growth, such as a CFO, can potentially and dramatically raise the value of your business, thus resulting in the best sales price for your business.
It may be time to get started—don’t procrastinate this important process.
Sources: b2bcfo.com, entrepreneur.com and sba.gov.