Many business owners are under the false impression that whenever they need or want to, they could put their business up for sale and it would sell. In reality, most of them have no control over when their business will sell. The process of selling a business can be a very long and complex one, and many sellers underestimate this. However, a lot of business owners are simply unprepared to sell their business. This lack of preparedness can stem from failing to have all of their financials in order, or not having a proper exit strategy.
A recent study performed by the Exit Planning Institute (EPI) showed that most business owners have 90% of their assets tied up in their business. Someone who is in this position is not prepared to sell because their business does not have a lot of liquidity, which is not appealing to prospective buyers. Failing to have financial statements in order is another example of how many owners are unprepared to sell their companies. Serious buyers will not only want to see a profitable business, but also detailed bookkeeping and financial records. This includes cash-flow statements, balance sheets, profit and loss statements and tax returns, just to name a few. A business owner who is not able to pull financial documents at any time is not prepared to sell their business. The best way to be prepared is to keep up with this documentation regularly. It will not only make ensure that you are ready to sell when the time comes, but can also help you find ways for your business to save money and even increase its overall value.
One of the best decisions a business owner can make for their future is to develop a proper exit strategy. Having a well-developed exit plan doesn’t necessarily mean you are ready to sell your business. It simply means that you have taken the steps to protect yourself from an uncertain future. Unexpected expenses and health issues are among many circumstances that can destabilize your business and person life. The EPI reports that the majority of business owners surveyed paid very little, if any, attention to their transition plan, had no written transition for the next owner, and had never sought advice about exit planning from a professional advisor. Selling a business whenever you want can be very difficult if you haven’t thought about transitioning to the next step. Moreover, a buyer looking at a business for sale will wonder how solid the business really is if you haven’t taken the time to ensure that the next owner knows how to run it and maintain its success.
The first step in developing an exit strategy is to find out what your business is worth. Many of the business owners surveyed by the EPI did not have a clue about of how valuable their business was. Knowing its worth helps to choose the right course for your exit strategy. It may be worth more than you thought, which might make you want to sell earlier than you expected. It could also be worth less than you thought, which could prompt you to find ways of boosting its value. Business owners who don’t have accurate information about the value of their company could be in for a rude awakening when it comes time to sell and they can’t fetch the asking price they expected.
You can put yourself in a position to successfully transfer ownership by creating a transition plan and an outline for running the business. By maximizing the transferrable value of your business, you are making it more appealing to future buyers. Get all of your financial documents in order and stay on top of them regularly. If you have to hire an outside company or individual to manage your books properly, do it. Outline your business procedures so that if something happened to you, there would be clear instructions for how to run the business. Don’t forget about your personal plans either. Make sure you are prepared to manage life, including your expenses, after you have sold your business.
When and how much you sell your business for will never be completely under your control but you can tilt the odds heavily in your favor by planning ahead of time. Experts say that planning for the day you move on from your business should begin the day you start your business. With a solid financial base and a well thought out exit strategy in place, your chances of selling whenever you want to are much better.
If you own a business in Southwest Florida and you don’t have an exit strategy or succession plan in place, contact CIBB to get started. Our consultation begins with a free business valuation estimate, so you can at least know where you stand. From there, our business experts can help you to formulate an exit plan that will help make it much easier to sell when the day comes.