Preparing your financials is a critical, early step in the process of selling your business. You need to have all of your financial statements on hand and ready to present to a prospective buyer when a deal gets serious. However, being ready to sell does not necessarily mean that you are in the right position to sell. Many small business owners entangle their personal and business financials, complicating their exit from the company. They end up in a position where even if the business financials look good, their personal finances are suffering.
Why can’t some owners afford to sell?
There are business owners who run healthy businesses and live within their means, but still find themselves in a compromising situation when it comes time to sell their companies. Some fail to put enough money away for retirement. Others run too many personal expenses through their business. This may include a vehicle payment, health & life insurance, travel or countless others. If you are in this situation, you need to get a grasp on these expenditures and figure out how you are going to pay them when the company is no longer there to do it. This can help you to properly budget for life after selling your business and ensure you have enough money to fund your next venture or retirement.
Boost the business’s value
If find yourself in this type of situation, you can help offset these expenses by increasing the value of your business so you can sell it for more money. Some strategies include diversifying your revenue streams or establishing more recurring revenue. You can also make sure there is a strong management structure or an operations guide in place so the business can continue to operate smoothly in your absence. Consult with a business broker on other creative strategies you can use to boost the value of your company. They can help you find ways to highlight unique aspects of your business than can assist in maximizing the return on your investment
Alter the deal structure
In a business sale transaction, buyers will sometimes ask the seller to roll equity back into the business. This rollover equity represents the seller’s reinvestment in the business. It benefits the buyer by helping to ensure the seller will assist with transitioning business post-sale. It can help the seller to share in the future equity of the business as it continues to grow. This provides them with the benefit of maintaining an ownership position while simultaneously taking case out of the company from the sale.
Depending on your situation, it may be beneficial to reduce or increase the amount of rollover equity in the deal. On the one hand, reducing or eliminating your rollover equity could give you the advantage of getting more cash up front to pay off debts or meet another immediate financial need. On the other hand, maintaining a financial stake in the business could help you manage personal expenses more efficiently as you transition away from ownership.
Find a partner
In a strategy similar to rolling equity, you can opt to sell only a portion of the business. If you can find a partner like a high achieving manager or employee that has shown ambition and interest in running the business, you could sell part of the company to them. Then you would get the benefits of cash from the sale and a steady stream of revenue from continuous involvement. If your ultimate goal is to get away from the business completely, you can do so, albeit more gradually. This slow transition to exit can give you the time you need to make sure your personal financial goals are being met properly.
Build personal liquidity
Another strategy is to start taking money out of the business to help build personal liquidity. Some business owners leave liquidity in the business for too long. You do not want to take so much money out that you devalue the company or leave it vulnerable, but if you start paying yourself a bit more, it could help you to clear out some personal debt or get your nest egg back to where it should be.
The best option is to prevent this situation from ever happening. If you have yet to find yourself in this position, do a financial check to make sure you are not covering significant personal expenses with the business. If you are, begin taking those expenses out of the business and budget for them personally. This might require that you pay yourself a higher salary until everything is properly segregated. When the time comes to sell, you will have a higher profit margin and be closer to funding your post-sale financial goals.
Having a knowledgeable business broker to walk you through the sales process is a service that can pay for itself. Their experience can help you plan your exit, align the sale of your company with your financial goals and find ways to add value to your business so you can sell it for more money. Corporate Investment Business Brokers (CIBB) has been performing these services for small business owners in the Fort Myers, Sarasota, Naples and Tampa areas for 35 years. Contact us to get a free, no-obligation consultation and business valuation. The results can help you determine the next best step in your journey as a business owner.
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