Are you considering selling your small business? Perhaps you think it’s a good time to sell, considering that more businesses have been bought and sold this year than at this time last year, according to a BizBuySell survey.
However, valuations of those businesses could be lower in 2013, thanks to some tax changes. So if you want to get the best sales price possible, there are likely some steps you should already be taking. And allow yourself enough time to sell a small business.
Most owners don’t realize that selling a business can be so time consuming, according to Bob Pullar of Owners University, who recently suggested that owners spend three to five years preparing to sell in order to get the best price possible. Pullar said that preparing your business for sale over time will allow you to demonstrate how well your company trends over time, both financially and operationally.
And those who don’t take the time to properly prepare are leaving money on the table. According to Pullar, an owner that takes the time to complete all the necessary valuation enhancing projects can see an increase of up to 400% in valuation, depending on their industry.
So what steps do owners need to take to make sure they get the best sale price? Pullar recommends having three to five years of audited or reviewed financial statements, along with an annual business plan and three-year projection.
In addition, owners should have a detailed succession plan, which includes key managers to run the business after the sale, other employees who are key to the business’s success, and up-to-date contracts with third party suppliers.
According to a PriceWaterhouseCoopers survey (DOC), 79% of business owners identified maximizing the financial return as their top objective for succession. But not all of those owners said they had a succession plan in place. In fact, the most common step taken to prepare for succession was improving profitability by cutting costs and restructuring debts and compensation.
Though profitability improvements can certainly have an impact on valuations, Pullar said that most companies don’t require any massive changes in this area when preparing to sell. And even those that do need to make significant changes should begin preparations early and not discount the other steps involved in improving valuations.
“The most important thing for an owner to realize is that they can’t afford to wait until they know 100% that they want to sell their businesses,” said Pullar.
There is no magic formula for making sure your business is ready to sell. Targeting buyers and evaluating your business’s value can vary by industry. But having a plan and allowing enough time to implement it is essential for any industry.
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