Selling a Business? Better Get It Ready
09 May 2022: Selling a Business? Better Get It Ready
Selling a business takes preparation. I’ve written about various aspects of this before but certain things need repeating. And this is one of them.
Selling a business needs a plan and getting your business ready for sale is one of the earliest and most important steps in that plan. Herewith, a list of some basic issues that are too often neglected by the seller.
Some of these issues can be addressed at the 11th hour but others cannot be. But why wait until the last minute? If you take each of these items seriously, you’ll not only eliminate a lot of grief but you’ll likely have a shorter and more profitable sales process.
1) Clean Up The Joint!
Your business will be looked at from two angles: financial/operational appearance and physical appearance. From the financial/operational angle, it might be look fine; making money and flowing smoothly. But what does it look like physically to a potential buyer? What will they see when they pull into the parking lot or walk into the facility?
Over my more than 20 years in the business brokerage trenches, I’ve seen some real dogs – and I’m not talking about financial dogs (though I’ve seen my share of those, as well). From stained carpet and peeling paint to boxes of files and random spare parts, room-by-room and space-by-space, these places looked like pigstys.
A buyer is going to want something he or she can be proud of. Only the most jaded will be willing to pay top dollar for something they’ll have to spend months cleaning up before they can even tell their friends and family that they own it.
Want a higher price? Make it look like it’s worth it.
2) Clean Up The Financials!
Small business owners – and the owners of many not-so-small businesses – are notorious for keeping sloppy books. We’ve seen it so often that one of our first licensees, a CPA, started a sideline business offering to clean up the books of any business listed by any of the brokers in out network. This was a lucrative side hustle.
A buyer will pay for the business’ adjusted net profit – but only if the financials can support the profit claimed and support it coherently.
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We offer a comprehensive coaching program tailored to Realtors, business owners and anyone interested in buying or selling a businesses.
If you’d like to learn more, email me at jo*@Wo*******************.com
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3) Is A Management Team In Place?
Can you leave town for a month secure in the knowledge that your business will be in good hands until you return?
If your business is totally dependent upon you, a buyer is going to be very concerned about the possibility that something that he or she can’t handle right away will go wrong. This will reduce buyer interest – and reduce the price one is willing to pay.
4) Look At Value Like a Buyer
Business owners are notorious for their exaggerated opinion of the value of their business. This is understandable from two perspectives.
First, the business has likely provided substantial financial benefits to the owner and his or her family over the years and that, in and of itself, can give the owner an overblown impression of what their business is worth. But the second is emotional attachment. This is the your “baby”; in many cases only slightly less important than your children.
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REALTORS! Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successully sell businesses.
Don’t Miss Out on the Coming “Silver Tsunami”!
You have to look at the value of your business from a buyer’s perspective. Again, most buyers are asking themselves this question: “What will this business put in my pocket?” And they’ll want a return on whatever they invest. Have you calculated what their ROI will be based on the price you want to get for your business? I suspect not.
But you should, if you want to be able to justify the price you want. This means you need a third-party valuation. Contact a professional business broker – preferably one with a CBI designation – or a Certified Business Appraiser.
The value of your business is not based on how much blood, sweat and tears you’ve put into it but on the value buyers place on the amount of Discretionary Earnings the business produces; its earning capacity.
And remember this: there are thousands of other businesses for sale and yours has to be competitive in the market place.
5) Stay Focused
First, consider this: trying to sell your business yourself is like an orthopedic surgeon trying to replace his own knee. You and your management team need to stay focused on the business.
Consider this: as a rule, it takes between six and 12 months for a business to sell – and that’s one that’s both properly priced and handled by a professional! And the amount of time that professional will spend on the marketing, negotiations, financing, baby-sitting, etc., is significant.
Imagine how much a business might suffer if the owner, in an effort to save what is really a pretty modest fee, took all that time away from running the business – which is something the owner knows how to do – and instead spends all that time trying to sell the business – which is something the owner has no idea how to do.
When you’re trying to sell a business, its day-to-day operations must go on.
This is why hiring a professional team is vital—you and your management team can stay focused on keeping the business operating and maintaining its value. Let your advisors – who are professionals in their own field and do this for a living – handle the hard stuff. It’s what we do.
6) Assemble the Right Team
You’ve got to have the right advisors if you expect this effort to be successful. You’ll need a knowledgeable business broker, transaction attorney – not a divorce attorney or the guy that got your kid’s reckless driving citation reduced to simple speeding – and a tax advisor/financial planner who can guide your through the tax minefield and advise on what comes next.
Selling your business is not a DIY project any more than replacing your own knee is. It can be complex in the extreme. The result is likely a big part of your planned retirement or other future plans, and unless you’re trained in this multi-faceted process, it’s not worth risking your future plans by trying to do this yourself.
7) Remember the Poor Tax Man
Governments around the world are looking for more ways to get more money from more people and one of their favorite targets are the owners of private businesses. You’re one of them.
If a third-party values your business at $5 million, don’t start making any plans just yet because Uncle Sugar is going to want a sizable chuck – especially if you’ve not consulted with a tax-planning expert. This must be done before you make the decision to sell.
Your current CPA may or may not know the intricacies of tax strategy and planning for business owners looking to exit. You don’t want someone who has simply filed your business tax returns for the last few years.
Remember, your post-closing life is on the line here. Do you want to be sailing with the big fish or watching the grass grow from your perch on the porch?
This is important to do early – at least a year before selling – because some strategies to reduce taxes may have to be implemented with certain pre-closing time requirements.
8) Post-Closing Plans
Do you have any?
When meeting with business owners that have expressed an interest in selling, we ask, “What’s next?” If we don’t get a firm answer, for their post-closing life, we become a little skeptical of chances any deal we signed will actually close.
Why? Because if you don’t have a plan for what your next phase is, we’ve found that there’s a much higher chance that you’ll scuttle any deal simply because your self-image is wrapped up in your business and if you don’t know what you’ll do once the business is sold, it’s very possible that you’ll change your mind at the last minute. Uncertainty is scary. I know. It happened to me.
What kind of lifestyle do you envision? Will the sale proceeds – the after-tax proceeds – be enough to afford that? If not, you’ve got two options: continue to build the business to a level that its sale proceeds will support those plans or lower your post-closing expectations.
Yes, that’s a pretty stark way of expressing it but those are the choices you have.
You need to have a purpose in life – a reason for getting out of bed – that will give you fulfillment and joy. Many business sellers end up bored and unfulfilled. Again, I know. Because it happened to me.
The Bottom Line
Selling a business is a complex, time-consuming endeavor. A wise business owner knows that there are professionals that can oversee and manager the process. The wisest choose those professionals to handle it.
If you aren’t thinking about selling your business now, you will be. How can I say that with such certainty? Remember our tagline: “Every business that doesn’t fail will be sold. Every one.”
Make sure you have plans for what you’ll do post-closing. If for no other reason than to keep your spouse from going crazy and filing for divorce. Fortunately, this did NOT happen to me – but only because I wasn’t married!
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe
Searching For…
This week one of the inquiries we received was from a U.S.-based company in the midst of a roll-up looking to acquire multiple non-clinical staffing companies with between $500,000 and $8M in revenue. They want to complete at least two more such acquisitions before the end of the year.
If any of you know of something that might fit, please let me know.
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at jo*@Wo*******************.com