Think You’re Ready to Sell Your Business?
Do you feel ready to sell your business? Unfortunately, feeling emotionally ready to part with your business is different than actually being ready.
In fact, only 2 to 3 percent of all business owners who say they are ready to sell actually are ready. Getting the best value for your business requires deliberate actions to get ready to meet potential buyers.
You may already be close to being ready. According to Joe Worth, Entrepreneur’s Ask the Money Guy, 20 percent of people who say they are ready to sell are in good shape and simply need to shore up a few important matters first.
Here are seven key points that Joe Worth makes in his article. I’ve added a few words of advice based on my own experiences with business sellers and buyers:
Seven Actions You Must Take to Be Ready to Sell Your Business
- Hire Trustworthy Managers. Managers can make or break a business’s readiness for selling. If your employees are overly reliant on you, your business is probably not ready to be sold.
- Test the waters by removing yourself from daily operations to focus on big picture stuff. Ideally, the management team can hold down the fort. If not, either train the existing team or find some better replacements.
- Increase EBITDA. A company’s value is often determined by its Earnings Before Interest, Taxes, Depreciation, and Amortization are subtracted. The higher your company’s EBITDA, the more buyers will value it.
- Develop a Pro Forma. The pro forma is essentially your company’s financial model, detailing your projected future earnings. You can show buyers historic numbers until their eyes bleed, but that doesn’t tell them anything about the future of your business.
- Audit Your Financials. Buyers want to know that your financials have been audited, or at least reviewed, by an outside CPA firm or certified appraiser. Have at least three years of financials audited before attempting to sell your business.
- Get Outside Experts Involved. You can’t do everything yourself. Relieve some of the burden by reaching out to experienced and reputable estate planners as well as merger and acquisition specialists. Their outside expertise can be valuable.
This may include hiring a good professional advisory team to help you focus on the process of selling your business. Hiring the right team will cost some money, but it will pay for itself many times over. I recommend the following trusted, intelligent, proven professionals for this endeavor:
- Financial Team. This team may include CPA/tax advisers, investment bankers, and certified business and real estate professionals.
- Legal Counsel. Consider estate planners, tax attorneys, buy-and-sell experts, and business lawyers.
- Transition Team / Personal Coach. Find someone you trust to help with post-close transitions. For example, consider a family succession expert or retirement coach.
- Document Your Operations. You wouldn’t hire a new employee without outlining what the job entails. The same is true for handing over your business to a new owner.
- Set Realistic Expectations. Having unrealistic expectations about your company’s value makes it difficult to close a deal. Don’t rely solely on your own projections because a buyer will consider them biased. Instead, consult a certified valuation professional for a market value range.
One way to increase EBITDA is to diversify your products and customer base. And cut your costs to increase gross profits and margins.
Show them your plans for the business and exactly how its earnings will continue to increase. Be prepared to show them your projected outlook for the next three years. Reliable projections will reduce an ideal buyer’s risk.
Detail everything involved with operating your business, so that whoever takes over is prepared to do so. Be thorough. Include a road map, measurements, benchmarks, timelines, and goals. Include who is accountable for each phase of your operations. Clearly explaining each element of your operations helps lower the risk to the buyer, increasing the chances of a smooth transition and successful continued operation of the business.
If you implemented a Print MIS program or workflow automation software recently, most of this step should already be done.
Completing these seven steps can help you join the ranks of the 2 to 3 percent of sellers who are truly ready to sell. These actions lay the groundwork for answering some of the key questions a potential buyer is likely to ask.
At LaManna Consulting Group, our team of experts can help you develop a roadmap that can help you get your busines ready to sell. Think you’re ready to sell? Let’s talk! (561) 543-2323