SMART BUSINESS OWNERS PLAN THEIR EXIT STRATEGY
How can I maximize the value of my business? As a Transworld Business Brokerage, we are asked this question frequently. In this section, we will discuss the steps and strategies that a business owner can employ when preparing to sell a business. The key is preparation – the better prepared your exit strategy is, the higher the selling price it will command, and the more likely it will sell. A few minor enhancements can dramatically increase the marketability of your business.
When selling a home, most people will paint the exterior, landscape the yard, or upgrade the interior. Why? Because it will sell faster and command a higher price. Yet, many business owners, when selling their business, simply decide to sell one day and put it on the market with no preparation or plan. In reality, an exit strategy for a business could reap huge financial rewards for the owner when the business is sold.
The importance of preparation
Why don‘t many business owners do more to prepare their business? It all seems overwhelming and they aren't sure exactly where to start. This is where you call us and one of our business advisors in the office will be able to help you! Another reason could be to burn out. It is difficult to take the time and effort to prepare everything when all you want to do is walk away.
Remember, on average, it takes 8 months or more to sell a business. Your goal is to get a good price, but also to make sure your business is one that is attractive and sells quickly. Any work that is put in will pay off.
Maximize your Seller Discretionary Earnings: The period of time just before a business is put on the market should be a time when everything is done to show the highest earnings possible. Every dollar of SDE could mean 2 to 3.5 dollars in selling price. If you grow your sales just $30,000 that means your business could reap you an extra $100,000. Every effort should be made to show growth. Growing businesses sell for a premium.
Don’t forget the timing
Timing when to sell can be difficult. It means taking a hard look at your operation. Have sales peaked? Is your business profitable? Is your business stable and/or growing? Are the proper systems in place for your business to operate on a day to day basis? If these answers are yes then it is a good time to sell. If not, it may be advisable to wait a short time. Additionally, if there are any trends that are affecting the industry that you are in then it may be a good idea to wait as well. The best time to sell your business is when you are having your best year ever.
Selling a business that's not making a profit?
What happens if you're not making a profit? Should you still try and sell your business? It's possible, but it might not be as easy. There are people out there that specifically want to buy a non-profitable business. Someone buying a business such as this must have a game plan to turn around or improve the business.
Why would someone be interested in such a business?
It could be a variety of reasons. Maybe...
- The business has a valuable location. This could be in an area where locations are hard to find or heavily restricted by governing authorities such as alcohol, late hours, historical district, etc.
- The business has a valuable specialized license for gambling, alcohol, medical services, etc. that is hard to get or on which there is a current or permanent moratorium.
- All furniture, fixtures, and equipment are in place and operational.
- The business occupies a retail or manufacturing location that is “built out” with all building and operational permits in place.
- Suppliers/vendors of goods/inventory are in place.
- A significant/critical yellow page ad is in place. It can take up to 3-4 years for a yellow page ad to achieve full impact as people tend to keep and use old telephone books for up to a couple of years.
- a web page is usually in place.
- Trained employees are in place.
- Inventory/supplies are in place.
- Even though business profits are none or little, the business is not losing money. Businesses started from scratch usually negatively cash flow for 6-12 months.
- In some instances, it is cheaper than starting a similar business from scratch.
- A buyer can be in business immediately, whereas starting a business from scratch can take 1-6 months to get up and running.
- Businesses started from scratch have a 90-95% failure rate in the first year according to Dun and Bradstreet.
- There is a base of existing customers most of whom are usually repeat customers.
- Many first-generation immigrants with large families will buy a business of this type. They will replace the existing staff with family members turning what is now payroll into net income. A large reduction in payroll, quite often makes the business nicely profitable.
- If the business is a franchise, the franchisor’s staff will provide valuable guidance and assistance in making the business profitable. Franchise units appropriately run are overwhelmingly successful and profitable.
No matter your exit strategy, it is critical to conduct the sale with the help of a trusted business broker or advisor. Simply putting out the proverbial " for sale" sign can greatly affect your business's value, driving away employees, customers, and vendors. Business brokers and advisors like Transworld keep your sale confidential, offer the utmost expertise in valuing your business, and ensure that you get the best price possible. Also making sure that the best buyers are attracted to your opportunity takes the effort of a worldwide network that Transworld has like no other company.