There is a major mistake that could be costing you hundreds of thousands of dollars or more, yet most people seem not to care until it is too late. That mistake is not preparing your company for sale. When you prepare to sell your home, you go through great lengths to get it show quality. Before it even hits the market, you clean up the messes, put a fresh coat of paint on the walls and hire a good real estate agent. Yet, often times when business owners decide to it is time to sell their business, they barely even clean up the messes they know about.
Nearly 2/3rds of the businesses active today are owned by people over the age of 53 (source: US Census Bureau). What does that mean for the small business owner who is getting close to moving on to their next adventure? Well, it means that over the next fifteen years, all of their competitors will as well. And as that happens, the supply of businesses for sale will increase, which in turn will drop the prices purely due to available inventory. Just like selling a home, with five other homes on the street available, you need to make your home shine above those others. The same is to be said for your business. How are you going to separate your business from the pack. Well, here are a few suggestions.
For starters, decide a date range when you want to sell. While it is always prudent to have an exit strategy in mind, it is not always possible to stick with that date. Things change. People get fed up, stressed out, sick or have family issues. That being said, once you have identified a date range, I recommend you kick it into high gear two to five years out before that targeted exit date.
For starters, put a fresh coat of paint on the business. By that I mean, clean up the books. Now is the perfect time to strip out all those personal expenses you are running through the business. Today’s environment is all about a multiple of Earnings Before Interest Taxes and Depreciation (EBITDA). Generally, people are going to buy your business off a multiple of EBITDA and the higher the EBITDA, the higher the payout. You will be amazed at how many personal items are expensed by a common privately held business with one owner when you start to add it up.
Then, if you have not done so already, begin to have your records audited by a CPA firm. Most buyers will demand an audited set of financials for at least the past two years. If you have not had that done yet, it will delay everything else.
Next, sit down with your financial advisor. Your business is most likely your most valuable asset and the most significant source of income to you and your family. Once sold, that income stream stops. You need to determine a budget you can live by post sale to maintain the life style you chose. This is a perfect time to talk to your financial adviser.
Next, speak to your tax representation. Many people forget that the price they receive for their business is not the cash they end up with as Uncle Sam and his relatives living in each state want a cut.
After those items have been accomplished, I would then recommend sitting down with a few business brokers at this time. They are experts in their field and will give you guidance on what the market is doing and projected to do. They will also advise you on what you need to do to get your target amount and maximum value.
If you would like more information about selling your business and what programs we have in place to assist you, please email us at email@example.com
By Steve Gagnon, CPA