According to a recent survey conducted by the Small Business Administration (SBA), 8 out of every 10 businesses fetch 20-50% less than their true value when they are sold. Starting and running a business is a big risk. Many small owners have the majority of their assets tied up in their companies. If you are one of them, you have probably invested countless hours and risked financial security to keep your business going. Considering all of these factors, plus the financial importance of the decision to sell, why would you want to settle for a fraction of what your company is worth? Chances are, you will only sell a business once in your lifetime. Here are some tips for how to make the most of that opportunity.
Make Your Business Succeed Without You
Buyers see a high risk in purchasing businesses that are too reliant on their owners. Similarly, it should not depend too much on one or two key employees. Investors will feel more secure purchasing a business that they can easily transition to their ownership without sacrificing profitability. Develop a strong management team to help ensure that it can operate independently of your presence. Also, if you don’t already have one, prepare a thorough procedural guide for your business. Making sure your business operations and policies are well documented enhances its transferability and allows buyers to easily see how they could run the company themselves. This subsequently increases its value.
Recast Your Financials
Most business owners tailor their financials towards tax savings. Their accounting practices are focused on getting the most amount of deductions. Unfortunately, this might make your business look less profitable to potential buyers. By recasting your financial statements, you will be able to remove discretionary or one-time expenses. This will provide investors with a more accurate view of your earning potential. Some assets, such as equipment, can similarly have their value reduced for tax purposes. They can also be recast to show current fair market values. If you are unsure about how to recast your financials, you can consult with a professional who is experienced in doing so, such as your business broker.
Sell the Future
Your company’s proven ability make money will attract buyers, but at the end of the day, they will decide to buy it because of its future ability to produce income. Is there something in your business you have always wanted to do to help grow it, but you didn’t have the resources to make it happen? Do you offer a unique product or service that competitors haven’t caught up to yet? Maybe you have valuable intellectual property, such as patents, specialized equipment or unique business processes. Identify potential ways your company can expand, evolve or be repurposed. Marketing these features could help investors to use their imagination a bit. They might have the resources to grow the business is ways that you have always wanted to. If your business looks like a great opportunity, they may be willing to pay more for it.
Create a Confidential Business Report
A Confidential Business Report (CBR) is a detailed overview of the business. It usually includes a confidentiality disclosure, company history, executive summary, operational overview, income statements, organizational chart, employee positions and roles, market analysis and marketing plans, historic and recast income statement and balance sheet, and projections of future earnings. This is an excellent sales tool to give to qualified investors. Having one ready shows them that your company is organized and built on a solid foundation. It also shows that you are prepared to sell, and can keep the momentum of a deal going. If you hire a business broker, they can help prepare a professional CBR for you.
With the right amount of preparation, selling your business for more than what it is worth is achievable. The sooner you start the better. The process of selling can take anywhere from several months to more than a year. By taking the proper measures to raise its value, you can also increase its appeal and possibly speed up the sale.
Getting top dollar for your business may seem easier than it really is. While anyone can decide to sell their own company, it is usually not advisable, especially if you’re trying to maximize your profits. Most small business owners who settle for pennies on the dollar do so because they get overwhelmed by the process of selling on their own. If you want to sell a business in the Fort Myers, Sarasota, Naples or Tampa areas, contact Corporate Investment Business Brokers (CIBB). Our brokers have over 100 years of combined experience successfully selling businesses for top dollar. Contact us to get a free valuation estimate and find out how much you can make by selling your business.
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