Tony Samples
Are you planning to sell your business in the next 3 years?
A recent survey by BizBuySell found that Baby Boomers are rapidly approaching the time to sell their businesses. The survey indicated that 32% of all privately held businesses would change ownership over the next 2 years. Does this mean that there will be a large inventory of businesses on the market? Maybe, but don’t be concerned, if your business is ready to sell and priced correctly that makes all the difference.
Is Your Business Ready To Sell?
You must look at your business through the eyes of a buyer and a banker. Both want businesses that are growing sales and profits, have a great product and strong employees as well as a diversified customer base. Here are a few common traits of very sought-after businesses.
- Sales increasing year over year. Businesses with a decrease in sales (unless it is easily explainable), will most likely be sold at a deep discount.
- Key People In Place. Are you the contact for the customers and suppliers? Here is the test. If you can’t leave the business for 30 days without fear of a disaster, you may have a business but it’s also a job. Put people in place who have the power to make decisions. The business must stand on its own. The more you are in the background with a strong team in place out front, the more attractive your business will be. Most buyers do not want a business that they will be tied to everyday.
- Customer Diversification. Do you have 1 customer that makes up a large part of your sales or maybe 2-3 customers that account for 50% or more? A buyer and the bank will find this a concern.
- Clean Books. Eliminate unnecessary personal expenses. Businesses are valued by a multiple of the cash flow, seller’s discretionary earnings, or EBITDA. Some owners live out of their business, making it difficult to determine an accurate cash flow number. Bottom line, the more profit, the more you will get for your business. Owner expenses that are easily identified and explained can be added back to profit (owner salary, owner life insurance, owner medical etc.)
- Business Physical Condition. If you own a retail business or a business where your customers visit, how’s the curb appeal? When was the last time you remodeled? Buyers will be looking at your place of business with fresh eyes. Is the outside and inside up to date, modern, and appealing? Are all the vehicles and equipment in good working order?
- Clean Inventory And Equipment. If you have any excess equipment or inventory not necessary to the operation of the business, clear it out. A buyer will not pay full value, if any, for the excess. Sell it now while you can take a little more time and get a better price.
- Workforce Stability. Having too many relatives working in the business could be an issue. The buyer would have concerns i.e. will they stay on after the sale? Will they be loyal to the new owner?
These are just a few of the questions or concerns that a buyer and banker may have, there are many more. We can help you by making recommendations to prepare your business for sale. Call us at 678-988-1495.
