Whether you are just starting your business or have been in the thick of it for decades, it is never too late to begin positioning your business to sell. We often speak with business owners who are ready to retire but haven’t planned an exit strategy. On the other side, we speak with business owners who feel retirement is far away and choose to focus on more pressing needs.
In both of these scenarios, spending time today will pay great dividends now or in the future. Here are a few strategies you can begin implementing today to better position your business to sell.
#1 Reduce Owner Dependence
Begin now to delegate responsibility to your team. This allows your team to grow and take more ownership. Your goal is to be the owner, not the operator. A business is more sellable when the day-to-day operations are not dependent on the owner. This includes transferring key relationships with customers and suppliers to the business rather than staying with the owner. The business should be able to run without you.
#2 Sell at the Top
Don’t wait until your revenues or profitability begin declining. Strong numbers result in higher purchase prices. Potential buyers typically look for companies that have strong and consistent growth. Sharp decreases or increases in revenue or profitability indicate more risk to a potential buyer. Additionally, businesses that experience significant fluctuations in their financials will likely receive a lower valuation multiple to compensate for the increase in risk.
#3 Implement your Exit Strategy
Begin with the end in mind. While your exit strategy may change over time with new opportunities or challenges, be sure to have one in place. There are many different exit strategies including third-party purchases, employee buyouts, or family succession, among others. The best exit strategy is one that fits your small business and your personal goals. Planning now will give you time and help you maximize your return.
#4 File Taxes Strategically
Many businesses opt to file taxes with the end goal of minimizing their tax liability. While there may be a short-term benefit to this tactic, it often backfires when looking to sell or obtain financing. Strategies to minimize your tax liability often under-represent the business revenue. Lower revenues increase risk and decrease the value. Additionally, lower revenues also make financing more difficult to obtain. An experienced accountant can help you take advantage of tax benefits and strategies that won’t decrease the value of your company in the long run.
#5 Know the Value of your Business
Many business owners have no clue what their business is worth. Obtaining a business valuation can help you understand the value of your business today. You can then use the information in the report to create a plan to grow your business to its desired worth. This can help ensure a comfortable retirement – if you are relying on the returns from selling your business. This will also help you set an appropriate selling price and be able to better negotiate with potential acquirers. Hire a business valuation professional today to help you know the value of your business and how to increase it.
If you are looking for further advice on positioning your business to sell, Peak Business Valuation is just a call away. We work with small business owners to know, understand and maximize their business value. Questions are always welcome! Please reach out via email or through a phone call.