Answer the following question: When’s the best time to start saving for retirement? Of course now…it doesn’t matter how old you are, your station in life or how much money you have in the bank. A stress-free retirement requires planning, saving and preparation beginning right now.
When should a business owner start preparing to sell his business? The answer is also now! One of the great lessons in life and habits of highly effective people is to begin with the end in mind. The day we open our business is the day we begin preparing for the day we sell it or pass it on to posterity.
According to a recent story in the Wall Street Journal, more small-business owners sold their companies in Q2 of 2011. This increase marks the third year-over-year quarterly gain in a row. The story continues that the main driving force was the acceptance among owners that their businesses are no longer worth what they once were. I may be wrong, but it sounds like some owners sold their businesses in desperation before the business evaluations dropped lower.
Of course, there are many reasons to sell a business. Sometimes you’re tired of the grind. Sometimes an illness or other life-changing event gets in the way. Sometimes you just need the cash. The reasons people sell are diverse, but one thing common to all sellers is that they want the best price possible. Careful planning and preparation are keys to maximizing the selling price and rewarding you for your hard-earned efforts. Here are six suggestions that will help you prepare:
1. Plan to Sell the Day You Open Your Store’s Doors
Michael Gerber, author of E Myth, says the purpose of opening a business is to sell it. When an entrepreneur starts a business, plenty of thought and planning go into the potential enterprise. However, budding tycoons should also think about their ultimate exit strategy and try to estimate under what conditions they’d like to call it quits. Visionary entrepreneurs will estimate what they ultimately hope to sell the company for in dollars and cents.
2. Create a Business Plan
A business plan is critical for a potential buyer and your banker to see the state of the business, its growth since it started and where it can potentially go. So many people think they’ll sell based on historical performance, but the buyer also wants to know about future potential. What are the current owner’s expectations about what’s going to happen and how is it going to happen?
3. Keep your Books in Order
Buyers evaluating your business generally want you to demonstrate a good accounting history of your company. Many will require at least three years’ worth of financial information. The more formal your statements (accountant-reviewed or -prepared vs. internally generated), the better the impression you’ll make. Tax returns may suffice. The buyer needs to know what the return of the business is at this moment before he thinks about the future.
4. Systematize Your Business
Why do franchised businesses survive and thrive at significantly higher rates than businesses started by entrepreneurs? Plain and simple: systems. When someone buys a franchise, not only do they get training on how to run the business, they get policy and procedure manuals on how to do every task in the company. Franchises use proven systems that produce results. Document everything that is done in your business in policies and procedures manuals. Documented proven business practices will make your business more valuable to any potential buyer.
5. Consider Management Succession
Can the business run without you? If you’re absolutely vital to your business, who will a buyer be able to turn to for help in running the business after you leave? You should have a succession plan in place before going to market. Ask yourself, “If something happens to me tomorrow, will the business survive?” Hire, train and delegate, and create systems that can work for others (see my column in the June issue of NFT, “How Strong is Your Employee Team?”).
6. Consider the Business’s Visual Impression
A business is first and foremost a visual thing. Will a buyer visiting your store for the first time see order or chaos? Buyers as well as customers look for companies that show well, as an orderly business is often indicative of smooth operations. You need to sell the outside of your store with an attractive store front that demonstrates your brand, and an interior with attractive displays and an organized inventory. Visually, your store must sell itself.
If you are planning to sell sooner than later, here are some more immediate actions you should take:
Get a business valuation. Obtain a realistic idea of what your business is worth from an objective, outside source. A professional valuation will give you a basis for gauging buyer offers and will give you an idea of what you can expect to net from the sale. It will also tell your business’s market position, financial situation, strengths and weaknesses (which you can hopefully correct prior to putting the business on the market).
Consult your financial advisor. It’s wise to speak to your tax advisor for help planning your financial future. Understanding your personal and corporate tax situation may also help you recognize your options with regard to deal structure.
Organize your legal paperwork. Review your incorporation papers, permits, licensing agreements, leases, customer and vendor contracts, etc. Make sure you have them readily available, current and in order.
Get an advisory team. Start interviewing attorneys, brokers and accountants who are proficient in mergers and acquisitions. Strongly consider hiring an intermediary, either a business broker or an investment banker, to represent you and help you through the selling process.
Stay focused. Don’t let your business performance decline because you’re too focused on the sale of your business. This will only give buyers additional negotiating power to lower their offers.
Consider how you’ll sell. There are several options, and not all of them involve getting out of the business entirely: You could take a note on the business. You could sell the business, but retain the real estate. Or you could opt for a cash sale of both the business and land.
Selling a business can be as difficult as buying and running one, but with a little planning the process can be made less painful. Planning throughout all stages is essential to ensure you get the most from your business and secure your retirement income. It is a decision you should make now.