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If you’re thinking about selling your business, start planning early and have well-defined goals in mind. That’s the most important advice I can give you. Why? Because it takes more time to plan for your future, find a qualified buyer, and complete the sale of a business than you might expect. Plus, the earlier you start, the more time you have to improve your operations and, if necessary, recover from missteps. Although most business owners find it hard to believe, identifying a serious buyer—and, more importantly, negotiating the best price and terms—doesn’t happen overnight. It can take years, but with the right plan in place, it hopefully won’t take that long! So, if you’re planning to retire at 65, don’t wait until you’re 60 to start thinking about your next steps. The earlier you can start your planning, the better! That way, you’re increasing the value of your business and boosting your bottom line along the way. As mentioned, there are a lot of different aspects to consider and think about prior to starting the process of selling your business. Here are some key facets that I like business owners to start thinking about before the selling process.  

Get SMART

Short- and long-term goals are essential to success, and the best goals when it comes to selling your business are SMART goals:

• Specific: Specify precisely what you plan to do (e.g., sell my business).

• Measurable: Define how much you need (e.g., for $1 million).
• Achievable: Goals that are realistic enough to be achieved (e.g., sell for x10 EBITDA, is that a reasonable expectation?).
• Relevant: What is meaningful to you (e.g., I’m about to turn 65 and promised my spouse I’d retire when I do)?
• Timed: Define a deadline (e.g., by December 31).

 

Life After Selling

I advise you to set a goal of selling your business for enough money to afford the lifestyle you want. This requires having a clear idea of what that lifestyle is. It will force you to be realistic, which may mean having some hard conversations about what your business is worth versus what you think it is worth. Even though doing so can be difficult, the sooner you do, the sooner you can begin to increase the value of your business!  

What Is My Business Worth without Formally Evaluating?

Identify what your business is succeeding at and what needs to improve. I recommend using a 10-point scale by which you give yourself a 0 for tasks your company doesn’t perform as well with and a 10 for tasks your company excels at. Once you have completed that evaluation, focus your attention on the tasks that you scored a 0, 1, 2, or 3 because they are the tasks that present the most risk. However, they are also the areas that offer the most significant opportunity for improvement!  

Increase Your Cash Flow and Sales

These two aspects are crucial to consider during the planning process. Cash flow is critical because any road bumps with it would cause 80 percent of business failures. Minimizing risk, paying debt, and diversifying your supplier base can make your business more attractive to potential buyers. Even proper bookkeeping and a revamped website can increase the value of your business!  

Identify Potential Buyers and Structure the Sale

Are there specific individuals or companies that may be interested in buying your business? For instance, if one or more of your children or other family members work for your business, is there one or several with the skills and financial wherewithal to take over? If so, would they be interested? If not, who might be? Identifying how you would like to potentially transition ownership and to whom are important aspects to consider as this requires thought-out planning and careful consideration from both parties. Consideration of all avenues (including potential tax implications of your sale) could affect both you and your buyer in very different ways. Including a tax expert in your exit strategy planning could help avoid expensive tax pitfalls. Are you interested in talking to Dennis about selling your business or working to increase its value? You can reach him at 517-712-2057 or dtheis@manercpa.com.