What Smart Business Owners Do Before They Sell

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Three critical steps successful business owners take before listing their company that maximize their sale price and minimize headaches.

The new year is traditionally the time when people plan the next year. Often, the plan includes selling a business – whether to retire, pursue new opportunities, or simply cash in on your success.

Yet, there is no guarantee your business will sell. According to the International Business Brokers Association, 80% of small businesses that are offered for sale do not sell!

You’ve built a successful business through years of hard work and dedication. But will your business be one of the 20% that sell?

The difference between a successful sale and a failed one often comes down to preparation. Laying the groundwork before listing your business is crucial for maximizing value and ensuring a smooth transaction.

Here are three essential steps to take before putting your business on the market:

Get Your Financial House in Order

The first thing potential buyers will scrutinize is your financial records. Clean, accurate, and well-organized financial and tax records are crucial for establishing trust and demonstrating your business’ future earning potential.

Start by collecting your profit and loss statements, balance sheets, and tax returns for at least the past three years. Make sure they’re accurate and properly prepared. Then differentiate between discretionary expenses (like your vehicle or travel costs) from necessary operating expenses to show its true earning potential.

Remember – buyers buy for future earnings. The clearer and more professional your financial records, the easier it will be for buyers to see that potential.

Document Your Systems and Processes

Many service businesses rely heavily on the owner’s knowledge and relationships. While this might work while running the business, it can seriously hurt your sale prospects. Buyers only buy businesses they know will continue after the owner leaves.

These should include:Operating procedures,Client acquisition processes,Marketing systems,Employee training systems,Vendor relationships, andClient management practices.

A practical book to help with this is Systemology by David Jenyns.

Creating clear documentation demonstrates that your business can run without you, making it attractive to buyers and more valuable.

Get the Offering Price Right!

One of the biggest mistakes business owners make is setting too high an asking price, often for fear of leaving money on the table or based on what they “need” for retirement. Buyers, on the other hand, see risk, are typically well educated when buying larger businesses, and want confirmation. The business’ performance is the critical factor, not what you need as a seller or how the business is positioned to ‘take off’ next year.

For these reasons, it is crucial to work with experience professionals to know:The true benefit the business provides the owner, Cash flow and revenue multipliers for businesses like yours,Market conditions and realistic terms, andFinancing options for potential buyers.

Significantly overpricing your business can lead to it sitting on the market for a long time. Eventually, that turns into seller desperation making the seller vulnerable to a less than market value offer ‘just to get it sold.’ Don’t set yourself up for this with an overpriced business.

The Path Forward

These three steps are just the beginning of preparing your business for sale.

If you want to learn the insider secrets that successful buyers use when purchasing businesses like yours, Download our free “Guide to Buying a Business to understand how buyers evaluate businesses, what they look for, and what makes them walk away. This valuable insight will help you position your business for a successful sale.

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