Want to Sell Your Business Someday? Start Planning Now

We’ve touched on the subject of exit strategies here before and one of the most important points in that discussion is that you should have the end in sight even when you’re first starting a small business or buying an existing business.  The ultimate buyer of your business when you’re ready to move one will determine the direction of the business, how you manage it and how you position it.

So, now that you’re getting more serious about selling your business, who is it going to appeal to? Is your business basically an owner-operated company? If so, you’re going to have to find someone who has an interest in that level of day-to-day operations. Selling your business is a job of finding the right individual.

Do you have management in place to run the business so it requires minimal oversight from you? If that’s your situation, it opens up other options for buyers.  When your business falls into that second category you can be more creative in your hunt for a suitor. Think about companies who can use your business to achieve better vertical or horizontal integration.

Enhancing another company’s position
Is there a competitor in another area of the country that would benefit by expanding to your location? Maybe there’s a competitor who would like to snap up your business to gain market-share. This would be a horizontal expansion for the company doing the buying.

Does it make sense for a related industry to buy your company to improve its efficiency and allow it to capture value added profits? If you’re retail, do you have a major supplier that would benefit from a retail presence?

If your business is setup to continue beyond your ownership, an investor—a more local version of Warren Buffet—could be interested. This is especially true if the sector you’re in offers a good cash flow.

To get the best price you need to do a lot of homework; and this isn’t high school—don’t put your homework off until the last minute. You must find out how similar companies are valued. There are a variety of formulas used and you need to see which typically apply to the kind of business you own and operate.

Get ready for the scrutiny
indexOnce you understand how a potential buyer will look at your business when you start to negotiate its price, you can do a good job getting it ready to sell. You might need to make a significant effort to improve cash flow, reduce overhead, lower inventory levels or reposition your business in other ways to attract buyers at a price you can live with.

Usually buyers will look at three years of profit and loss statements. This is why you need to be planning your end game moves well before you want to make the sale.
There are websites such as BizBuySell.com where you can list your business and there are also professionals—brokers, mergers and acquisitions advisors and bankers—who can connect buyers and sellers. Find the right one for your business and start planning for your sale sooner rather than later.
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