Preparing to Sell Your Business:
For those of you who own or know of somebody who owns a privately owned and profitable business, following are some things you should know as you plan for the future.
1. Have an Exit Plan in Place – Whether you started the business yourself or if you
acquired it and scaled it up over time, the time will come when you have to decide when
you and any partners must exit the business. Making a simple plan is recommended with
details to follow as you get five years from removing yourself from the business. Include
yourself and any partners in your exit plan. Maybe you plan on handing the business off to a family member. Maybe a partner or partners want to buy you out. Or you may need to consider selling it. Either way your exit plan needs to be in place for a smooth transition once that time comes.
2. Financial Stability of the Business – Is your business profitable? Do you want it to be at
a certain level when you transition? Maybe you use your goal for the business as leverage
and motivation to scale your business up to a specific level during the time you have before
your exit. There have been many occassions where I have connected with an owner who wants to sell
their business and it is a shell of what the business once was. In these cases the owners
have grown to the point where they don’t want to work as hard and begin to ramp the
business down or just neglect it. In these cases the business will sell for a fraction of what
it once was. If you want to get the most out of the sale of your business make your plan to sell at it’s
financial Peak. This will garner more interest from potential buyers and bring a higher
asking price which will br more likely to stick at closing.
3. How Much Should I Ask For My Business? – Main Street to Lower Mid Market Businesses typically sell for a multiple of the Net Cash Flow or SDE (Sellers Discretionary Earnings). You should have good financials kept by a reputable bookkeeper and Accounting firm which will keep year to year financials on your Business. IE: Profit & Loss
Statements and Balance Sheets are common documents most buyers will want to see. Business Tax Returns will reflect your financials as you have submitted in each tax year and are generally the preferred document to review by potential buyers. Particularly those who will seek a lender to acquire the business. I have helped many business owners by reviewing their P&Ls and identifying valid add backs which increase the bottom line Net Cash Flow therefore enabling them to ask a higher multiple for the asking price.
For this article I have touched on some generalities and will elaborate in more detail and additional topics in future HLSA Newsletter Articles. Please call me for a free consultation or to learn about our Vested Business Brokers generous Referral Program.
Gary J. Meyn, LFACHE
Vested Business Brokers, Ltd.
Cell: 210-912-0120
Email: [email protected]
