What Exit Strategy Do You Have for Your Business?
Every intelligent business owner has an exit strategy. In order to get the best possible price and sell the business with the least amount of risk, it is best to do some planning (or at least thinking) prior to listing the business.
Avoid Three Common Mistakes During the Selling Process:
- Having incomplete or inaccurate financials
- Overvaluing or undervaluing your business
- Allowing one’s customers or employees to know about the sale.
The Better Financials the Better the Purchase Price
Many business owners deal in cash, use personal expenses as ‘business expenses’ which obscures a true picture of owner benefit, or do not keep up to date financial records. Normally a buyer will want to see the last 2-3 years of tax returns and/or profit and loss statements, along with an up to date financial statement (such as a profit and loss report) for the current year in which the business is being sold.
Buyers Seeking SBA Loans Require Financials for Business Sales
Buyers seeking an SBA loan with which to buy a business require a transparent set of financials. Other buyers may be ok with bank statements or any sort of other ‘evidence’ (such as invoices, receipts, looking at the POS records, or simply being able to observe the business for a fixed period of time) that can show the true owner benefit.
Do Not Overvalue or Undervalue Your Business Sales Price
Many business owners make the mistake of overvaluing or undervaluing their business. It is imperative to trust a professional and trust the pricing of your business to an experienced business broker.
- Sellers can overvalue their business by not thinking about the buyer’s cost to replace themselves or their expertise.
- Sellers may use unrealistic or incorrect ‘comps’ which unlike real estate is not typically useful.
- Sellers simply do not have the experience of realizing how most buyers will value their business.
- Sellers may undervalue their business because they do not understand how much net income (or owner benefit) their business actually produces.
- Sellers may not understand that effective advertising often time attracts buyers who can use the power of synergies by integrating the business being sold with their own.
- A properly valued business will result in a much quicker sale and will maximize the purchase price for the seller.
Sell your business Confidentially
A confidential sale for an intelligent business owner should be a top priority. Virtually any business is subject to competitive pressures or has employees who will become frightened if they find out that the business is being sold. Without a confidential sale, competitors will be more likely to steal customers or employees, suppliers may not give good vendor terms, or employees may become dissatisfied or even quit.
A Professional Business Broker Has Every Prospect Sign an NDA
Five Star Business Brokers of Palm Beach County uses the most stringed non-disclosure agreement (or NDA) in the industry in order to protect the confidentiality of the sale. Without a business broker professional who is protecting your interests by having every single prospect sign an NDA, your business will be at very high risk (see https://fivestarbusinessbrokers.com/the-prequalification-checklist-for-every-buyer/ )
Virtually Impossible for Sellers to Sell on Their Own Confidentially
Experience has shown that it is almost impossible for a business owner to get in contact with prospects themselves (by advertising the business themselves or by simply waiting to be approached by ‘prospects’) and still maintain the confidentiality of their business. Further, prospects need to be qualified so the business owner does not waste his or her time with prospects that can not afford to buy the business or can not get the proper financing.
Maximize the Sale of Your Business and Minimize Risk of Business Interruption
Maximizing the sale of your business and minimizing risk to your business requires an accurate and up to date financials or means of showing the true income of you business, knowing the true value of your business, and maintaining the confidentiality of the sale during the selling process. These three simple steps will sure to result in the successful sale of your business.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a free evaluation for your business.