Estimated read time: 4-5 minutes
Do you see yourself selling a business in the near future?
When you own a company, the idea of its sale is always tucked in the back of your mind. It is likely that, at some point, you will go through the process of finding a buyer for your business. As this time draws nearer, the reality of selling may be a thought that brings mixed emotions, like anxiety, relief, excitement, sadness. Regardless, you want to get the most out of your sale.
Preparing to sell a business should start years before the actual sale takes place. So, if you see yourself selling a business within the next several years, consider these five things you can be doing now to prepare.
1. Track current market and industry trends
As you begin to consider selling, actively track and assess the current market. Additionally, consider economic trends within your industry. Different businesses thrive in different market conditions; for example, the grocery industry boomed during the pandemic, whereas travel declined. So, examine your specific industry in relation to the overall market economy. What are the trends, and what are similar businesses selling for? As you assess and track market conditions and industry trends, you can begin to get an idea of what the prime time to sell your business will look like.
2. Understand what your business is worth
Receive a valuation or opinion from a qualified business appraiser. This can often be a very difficult part of the process. Who is a good fit to evaluate your business? What are common metrics used? Remember, buyers are most likely going to be interested in the profitability of your business – not just revenue. Once you understand what your business is worth, you can move forward with meaningful adjustments to increase profitability.
Lastly, if you have ever been through this process before, you know that the buyer will likely perform their own evaluation or hire a firm to perform an evaluation. The evaluation will likely be a way for the seller to "mine" for any potential reason to reduce the value of the business. Don't take this personally, it's often the nature of the process. However, knowing what areas might be vulnerable to that type of scrutiny may help you to make meaningful adjustments to bolster your business value.
3. Create a plan to increase profits
One of the biggest mistakes that business owners make is selling their business while profits are down. Even though it can be hard to part from your business when it is performing well, selling at a peak profit time can yield much greater results for you in the long run.
So, start now to create a plan to increase profits. As profits increase, so will the value of your business.
4. Get organized
When you eventually go through the selling process, buyers will likely want to see at least three years of financial statements. Therefore, as you prepare to sell, it may be a good idea to dig up all your financial records from the last few years (including tax returns, business transactions, current lease, etc.) and review them with your accountant. Having your finances organized will help you understand the value of your business better and ensure that the future sale goes smoothly.
5. Don't forget tax planning
Throughout the years of operating your business, you should be in frequent communication with your financial planner. Why? Because if they are great, they will help you assemble some tax strategy. Try doing the math of how much you will likely pay in taxes on the back of a napkin. It's alarming! Our invitation is, be thinking about tax strategy. We can help—this is part of what we offer for all of our clients selling a business.
If selling is in your near future, sit down with your advisor and discuss how your company's sale fits your comprehensive financial plan. Together, you can assess your business financials, current market trends, tax strategy and more. Then, you can create a detailed plan of how and when you want to sell.
At TrueNorth Wealth, our advisors are fee-only financial planners who work closely with business owners. Together, we will work with you to create a plan to sell your business that will enable you to achieve your long-term financial goals. If you are considering selling your business, call for a consultation today. Remember, any small adjustments that can be made will likely make a significant difference in the net proceeds you generate from the sale. Making the time to maximize this event is well worth it!