It’s Time to Exit. Are you Ready?
Thinking about whether or not you are ready to exit is an important question. It’s something that every business owner will have to address at some point. Importantly, you don’t want to wait until the 11th hour to prepare to sell your business. There are far too many pieces in this particular puzzle to wait until the last minute. You’ll want to begin the process sooner by asking yourself some key questions.
Determining Value
First, you’ll need to determine the actual value of your business. It is a harsh truth, but what you think your business is worth and what the market feels that it is worth may be two very different things.
This point serves to underscore the importance of working with a business broker or M&A advisor early in the process. An experienced broker knows how to go about determining a price that will generate interest and seem fair. Remember that at the end of the day, it will be the marketplace that determines the value of your business, but working with a seasoned professional is an excellent way to match your offering price with what the market will ultimately bear.
Going Within
Secondly, you’ll want to consider whether or not you truly want to sell. It is not uncommon for business owners to begin the process of selling their business only to realize a few hard facts. Wanting to sell and the time being right to sell are often two different things.
Upon placing your business on the market for sale, you may learn that you’re not emotionally or financially ready. If this happens to you, consider it a learning experience that will serve you well down the line.
Get Your Ducks in a Row
If you have done a financial assessment, a little soul searching and have begun working with a business broker or M&A advisor to determine that now is a good time to sell your business, then there are several steps you’ll need to take. You can be sure that any serious prospective buyer will want a good deal of information regarding your company.
At the top of the list of items potential buyers will want to see are three years of profit and loss statements as well as federal income tax returns for the business. Other important documents ranging from lease and lease related documents, lists of loans against the business and a copy of a franchise agreement, when applicable, are all additional documents that you will need to provide. You should also have a list of fixtures and equipment, copies of equipment leases, lists of fixtures and equipment, and an approximate amount of inventory on hand. A failure to not have this information organized and ready to present at a moment’s notice could be a costly mistake.
Working with professionals, such as accountants, lawyers, and brokers, is a savvy move. Owning and operating a business can be a complex process, and the same holds true for selling a business. Investing the time to seek out experienced and professional advice is the first step in selling your business.
Around the Web: A Week in Summary
A recent article from Forbes entitled “4 Things You Need To Do To Start Planning Your Exit Today” provides insight into the steps you should take when you are considering a business exit plan.
It is very common for a business owner to wait until they are ready to put their business on the market before doing any exit planning. It seems like planning the exit can wait while there are other tasks at hand to give your attention, but the opposite is true. A strategic successful exit requires careful and diligent planning.
There are 4 things you can do to start your exit planning:
- Build a successful business that is attractive to outside investors
- Ask yourself key questions that a potential buyer will ask such as “Is the business dependent on the goodwill of the ownership team?” and “Is your revenue stream diverse or dominated by a handful of clients?”
- Review and analyze income tax planning strategies
- Make a plan to maximize gifting strategies and your legacy
Click here to read the full article.
A recent article from Business Observer entitled “How to buy out a business partner” provides advice for approaching a buyout of one business partner by the other partner.
One key factor in this process is to stay level-headed. While this may be an emotional time, it is best to keep your emotions in check and look at the transaction with a level head.
It is best to create a buyout plan long before a partner decides it’s time to make their exit. Planning ahead can help this process be much smoother for all parties involved.
Another key factor is use the help of professionals for things like a third-party valuation of the business to help determine what the business is worth and an intermediary to guide the process.
Click here to read the full article.
A recent blog post from Allan Taylor & Co. entitled “Show Your Business Some Love: Get A Valuation” provides insight into the many benefits of getting a professional business valuation.
Getting a business valuation can allow you to see your business from a new perspective which may help you make improvements to the business and reduce or eliminate current struggles.
Potential benefits of a business valuation include:
- Identify ways to improve your margins, which in turn improves the value of your business.
- Put into focus how your business generates cash and what you can do to predictably generate more cash so that you can make short term improvements while also building value.
- Uncover inherent risk in your business such as too much dependency on the owner so that you can take steps to mitigate these risks.
Click here to read the full article.
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What You Need to Know About the Golden Age of Business Acquisitions
Business acquisitions are red hot, and all kinds of businesses are being snapped up. Some people are under the impression that only large businesses are being acquired, but this is far from the reality of the situation. It would surprise many to learn that so much of the “action” is, in fact, small businesses buying other small businesses.
In his Forbes article, “Take Advantage of the Golden Age of Business Acquisitions,” author Christopher Hurn explores the true state of the “acquisitions game.” His conclusions are quite interesting. In Hurn’s opinion, there has never been a more active time in the realm of business acquisitions.
If you own a business and are looking to grow, then you may want to consider acquiring a competitor in order to consolidate the market. As Hurn points out, there are many reasons that you might want to consider acquiring a business in addition to consolidating the market. These reasons include acquiring a new product or service, acquiring a competitor that has superior technology or even identifying a business that you believe is primed for substantial growth.
Yet, there are other forces at work that are combining to make this moment the “golden age of acquisitions.” At the top of the list of why now is a good time to investigate acquiring a business is demographics. According to a 2019 study by Guidant Financial and Lending Club, a whopping 57% of small business owners are over the age of 50. The California Association of Business Brokers has concluded that over the next 20 years about $10 trillion worth of assets will change hands. A mind-blowing 12 million businesses could come under new ownership in just the next two decades! As Hurn phrased it, “The stars are aligning for the Golden Age of business acquisitions.”
This all points to the fact that now is the time to begin understanding what kind of acquisition would best help your business grow. Hurn believes that turning to the Small Business Administration in this climate of rapid acquisition is a savvy move.
In particular, he points to the 7(a) program and a host of reasons that the SBA can benefit small businesses. Since the SBA lowered equity injection requirements, it is now possible to finance a staggering 90% of business acquisition deals with loan terms up to 25 years and lower monthly payments. Additionally, the SBA 7(a) program can be used for a variety of purposes ranging from expanding or purchasing an existing business to refinancing existing business debt.
Hurn truly does have an important insight. Baby Boomers will retire by the millions, and most of them will be looking to sell their businesses. With 12 million businesses scheduled to change hands in just the next 20 years, now is a highly unique time not only in the history of acquisitions but also in the history of business.
Business brokers understand what is involved in working with the SBA and acquisitions. A seasoned business broker can point you towards opportunities that you may have never realized existed.
Around the Web: A Week in Summary
A recent article from Atlanta Small Business Network entitled “The Confidential Marketing Process to Sell a Business and the Role of a Business Broker” discusses the difficulties that come with trying to market and sell a business and how a business broker can help ease some of these struggles.
It can be disastrous if employees, customers, competitors, or other third parties find out a business is for sale. It is important to develop a successful confidential marketing plan that is tailored to your unique business.
Your plan and your documents should highlight what is unique about your business without revealing too much. After identifying your potential buyer profile, you can determine a strategy to market to these potential buyers.
The most widely used form of advertising for businesses for sale are business listing websites. These websites allow brokers and sellers to provide a comprehensive profile of the business without revealing confidential information. This is where a business broker’s skills and knowledge come into play.
An experienced business broker knows how to write a listing ad and blind profile that will best describe your business with all the key information that buyers will look for. They know what appeals to buyers and can help your business stand out to impress.
Click here to read the full article.
A recent article from Forbes entitled “Thinking About Hiring A Business Broker? Ask These Eight Questions First” provides insight into the types of questions you should be asking when looking for a business broker. This helps ensure you’re finding the right person to help you sell your business.
It is recommended to reach out to several business brokers and ask these eight questions to find your best fit:
- Are you a member of the International Business Broker Association (IBBA), and do you hold the certified business intermediary (CBI) designation?
- How many deals, on average, do you close each year?
- What certifications or designations do you hold regarding business valuations?
- Do you work full time as a business broker, or do you do residential/commercial real estate as well?
- How long have you been a business broker, and have you ever sold your own business?
- Check out your business brokers’ online reviews.
- How long do you expect it will take to find a buyer and close the transaction?
- How much can you sell my business for, and what is the likely deal structure?
Click here to read the full article.
A recent blog post from The Value Focus entitled “Seven Factors That Will Increase The Value of Your Business” discusses how several elements of a business can impact how much the business is worth. Knowing how these factors impact the value of a business can help a business owner work towards building greater value in their company.
The seven factors highlighted in the article include:
- Poor Quality Financials – how well-prepared and accurate are the financial statements
- Up/Down Sales History – how reliable are the revenue streams
- Business Growth Prospects – what paths to growth exist
- Sustainable Competitive Advantages – what do you have that your competitors do not
- Unpredictable and/or Uncontrollable Profit Margins – how stable are the earnings
- Management Depth – who is running the show
- A Diverse Product and Service Mix – is there a balance of variety and focus
Click here to read the full article.
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Determining the Right Time to Sell
Determining when it’s finally the right time to sell can be a tricky proposition. If you are thinking about selling your business, one of the best steps you can take is to contact a business broker. A good business broker will have years, or even decades, of proven experience under his or her belt. He or she will be able to guide you through the process of determining what you need to do in order to get your business ready to sell.
One major reason you should contact a business broker long before you think you might want to sell is that you never know when the right time to sell may arise. Market forces may change, unexpected events like a large competitor entering your area, or a range of other factors could all lead you to the conclusion that now, and not later, is the time to sell.
In a recent The Tokenist article, “When is the Best Time to Sell a Business?”, author Tim Fries covers a variety of factors in determining when is the best time to sell. At the top of Fries’ list is growth. If your company can demonstrate a consistent history of growth, that is a good thing. Or as Fries phrases it, “What never varies, however, is the fact that growth is a key component, buyers will look for.” Growth will be the shield by which you justify your price when you place your business on the market.
If your business is experiencing significant growth then you have a very strong indicator that now could be the time to sell. Fries points to a quote from Cerius Executives’, CEO, Pamela Wasley who states, “When your business has grown substantially, it might be time to consider selling it. Running a business is risky, and the bigger you get, the bigger the risks you have to face.” Again, growth is at the heart of determining whether or not you should sell.
Knowing the “lay of the land” is certainly a smart move. For example, have there been a variety of businesses similar to your own that have sold or were acquired recently? If the answer is “yes,” then that is another good indicator that there is substantial interest in your type of business.
Reviewing similar businesses to your own that have sold recently can help you determine how much buyers are paying for comparable businesses. This can help you spot potential trends. In short, you should be aware of market factors. As Fries points out, everything from relatively low taxes and low interest rates to strength in the overall economy and an upward trend of sales prices can impact the optimal times for a sale.
Now, as in this exact moment, might not be the right time for you to sell. Getting your business ready to sell takes time and preparation. Fries points out that smart sellers “look for a good time, not the perfect time” to sell a business. Working with a business broker is a great way to determine if now is the right time to sell your business and what steps you have to take in order to be prepared for when the time is right.
