Deciding when to sell your business is not a straight forward process. A business owner might say, “When I am 65, I will retire and sell the business.” Sadly, there are many business owners that never make it to 65 and have to sell their company long before they or their business are ready.
Basing your decision on selling when you are a certain age can drastically affect the price that you get for the business.
Consider this scenario. A small business owner decided she wanted to sell after 30 years of working her business. Sadly, at 25 years, she had health issues and struggled to work in her business for the next 5 years. Slowly the revenues declined as she physically could not lead the business and her desire to run the business waned. Sadly, at the 30 year mark, her business had a very little value and ended up just closing the business after 30 years.
Had she planned for her exit, she would have seen the signs and decided to sell after 25 years instead of waiting till 30 years when the business had no value.
Unfortunately, no one knows what will happen tomorrow and having a plan for selling will allow you to make a quick decision to sell before a company is out of business.
A Plan for Selling Your Business
In order to maximize the sales price of your business, here are 5 things you can do to prepare.
Decide what “triggers” you to sell? Every business has a life cycle. Ideally to sell your business for the highest price, you will want to sell when the business is at the peak of its life cycle. This is often when business owners say, “I am making more money that I have ever made.” It is also the time when most owners are loving their businesses the most. This is the time to sell that will maximize the selling price. If building your business to sell for the maximum price is important to you, then you might consider this strategy.
Triggers that show you are at the peak of the life cycle include:
- Few competitors
- Thriving economic market
- Highest profits
- Fast growth
Prepare your business as if you were going to sell tomorrow. Once you recognize the trigger and decide to sell, you will need three to five years of tax returns. If you have not been keeping “clean” books you do not have time to clean them up. By “clean” books I mean removing all non-essential write-offs, like the family trip to France every year to order new products. This can lower the value of your business and to maximize your selling price, this needs to be removed.
This also means, have a growth plan and active marketing plan, all things buyers want to see, as well as secure your top employees. If you know we will sell, put retention plans in place so that your top talent will be staying with the business.
Consulting with early on can better prepare you for how to prepare your business for selling.
Actively watch the market environment to spot indicators to sell. Many business missed the “peak: back in 2007 and watched the value of their business decline through the Great Recession. Determine which factors will indicate to you the peak and actively look for the indicators. Holding on too long will reduce the value of your business and reduce your net.