Is it logical to think of putting up a business so you could sell it afterwards? Normally, business builders just focus on the goal of earning profit and on the operations that the thought of selling the business hasn’t really crossed their minds. But it pays to spend ample time preparing your exit plan even before that time comes.
There are questions that a business owner should be able to answer in relation to the selling of his/ her business:
- Is your business sellable?
Potential buyers usually look into the historical sales performance of the business, as well as its client base, advantage over competitors, potential for growth, location, and manpower. You may want to take a look at the previously acquired businesses similar to yours and see what made it attractive to the buyer. Search for information about sale transactions for the businesses under your field on websites or on printed publications.
- Are you prepared to turn over your business?
You, as the seller must be prepared in both financial and emotional aspects. Plot a plan on what you will do with your earning and your free time after the transaction. The following signs are those that you might have to take into consideration in order to know if it’s time for that sale:
- Fatigue and burnout in the operation of the business
- You don’t feel the need to expand the business further (despite having opportunities for growth).
- Lack of skill set needed for the business expansion
- How much is the value of your business?
Every seller would want to set a high value for their business but buyers might think that you’re not serious with the transaction if you’ll set at an unrealistic rate.
There are plenty of methods that can help you set the valuation of the business, one of which is the multiple of seller’s discretionary earnings. The formula requires the tweaking of profit-and-loss statements – adding back the pay intended for the owner, benefits costs, and expenses that are not seen to be incurred again. You may also want to do a comparison of your business with those similar to yours in terms of the value.
Building your business continuously will be helpful in raising its value. Again, observe similar businesses that have been acquired previously. Identify the factors that made them stand-out? Is it the low turn-over of employees, its website? Does it have loyal customers? Did it bag a lot of awards or earn a high ranking? Is it performing positively in terms of profit? Businesses that deliver incremental annual sales of 25% are highly attractive to prospective buyers. Keep in mind that buyers will not hesitate to do the purchase if they see that your business will contribute a lot more on top of their own products and services.
On top of that, as early as now, be proactive and prepare the necessary documents and information that buyers will most likely ask for. You may never know the level of interest that buyers have, so in order to close the sale with them immediately, be equipped with the ff.:
- Financial statements and tax returns for the last three years, including the current balance sheet
- Detailed list of physical assets
- List of existing inventory
- Other documents like lease contracts
The need to replace or repair equipment and probably giving the physical office an uplift might give your business more chances to be sold.
Maximize the power of the internet. Most buyers browse through online marketplaces like Businesses Buy Sell to look for potential businesses that can be purchased.
Online listing may be brief, only highlighting some details to give a glimpse of the business. But others prepare comprehensive bulletins to be sent out to prospective buyers who already signed the Nondisclosure Agreement.
Make sure that the potential buyers will be capable enough to facilitate the acquisition. Get some of the basic information about the buyers like their full names, contact details, employment or entrepreneurial details, educational background, financial capacity, planned lead time for the transaction, and reason for buying the business.
Once you’ve shortlisted the prospective purchasers, let them present their deals and terms. There is a big possibility that offers might not meet your expected amount. Negotiating and being able to tweak the terms might lead to the successful close of the sale. An accountant or a lawyer might be of great help in estimating the tax implications on the agreed terms.
In order to have a successful sale, it is best to set expectations and avoid complacency and occurrence of shocking scenarios. Once you’re done with the transaction, treat it as an accomplishment, and savor this win.