Are you an entrepreneur, who recently received a call from a potential buyer for your business but you refused the deal? Do you think that was the right move? Think again.
You sure might think that why I should be selling my business when it is running well with a good team in place, and the company is profitable with healthy cash flow. More intriguing thought would be why I should prepare to sell my business especially when the business is not for sale. Well, that’s a common notion for most of us, because we don’t really believe that we ever start a company to sell it, but the company is for solving people’s problems. Nonetheless as the business owners, we know that logically at some stage we will need to either sell our business or close it down. And definitely, selling is a better option any day.
Knowing when to sell the business is one of the pivotal moments in the owner’s life, and unfortunately, there is no guidebook that can tell you exactly when to do it. However, it is important to understand that the best time to sell the business is when you WANT to sell it and not when you NEED to sell it.
According to the study conducted by The Business Spectator, less than 10% of the businesses are ready for sale. Parting away with the business is not easy and it will have financial and emotional considerations, such as working out what to do once you no longer own the business and developing a personal financial plan. Although the money from the sale will take care of the finances for a while, the major concern is to live with the fact that you are no longer an entrepreneur.
Whether you had expected it or not, once you receive an offer for your business that is when you should start with the planning process to make the sale. Every potential buyer will be reviewing your business’s history and they will be asking to see the copy of your financials, the minimum for the previous three years and likely even more. The buyer will spend a lot of time reviewing the history and financials of your business, and having a clean and up to date financials with adjustments that do not raise concerns will make the buyer more comfortable in offering the deal. Every little amount that you take out of the business but cannot account for will cost your business’s valuation. Well-organised, accurate and believable financial statements will have more influence on the buyer than anything you might promise.
Another important thing to do is lay ground work before you can actually sell your business to keep different options open because the taxes on the sale can take a big portion out of the proceeds. You should start the preparation well in advance so that you can get the most out of your investment by minimising taxes. Planning ahead will give you sufficient time to tackle obstacles and identify opportunities that will allow you to choose from different approaches, which will essentially be the point of negotiation with a buyer.
Another thing that you might want to make sure of is that to have good agreements and relations in place with your suppliers, customers and staff. The value of your business will be more if it has signed long-term contracts and agreements with customers and suppliers. The best approach to this is to have these documents in place in the usual course of your business so that you can announce the change of management at the right time. If you hustle around to get the agreements and contracts in place all of a sudden, then people might smell the smoke and might create unnecessary hitches. It is also a good practice to diversify your customer base and not to have all your eggs in a single basket. If for unforeseen reasons something goes wrong with the minimum group of customers, then it will heavily affect your revenue which in turn will not be a favourable deal for the buyer.
And finally, make sure that the timing is right for selling your business so that you can sell it on your terms rather than that of market’s terms and likewise get the company’s maximum value. Also, involve a good set of advisors such as accountants, lawyers and investment bankers who will make it easy to make the sale as well as assist you with your financial planning once you receive the lump sum.
Preparing your business for sale can take a long time especially to get ready emotionally and financially. Therefore, if you start on early then it will put you in a better position by giving you more options rather than putting you in a situation where you will need to accept a low offer because you don’t have things in place. So to quote Tom Deans, the author of Every Family’s Business, “Your business should always be ready to sell.” Because everything you do to prepare your business for sale will not only make your business successful but will also be beneficial to you as the owner and to the buyer as well.
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