As an Expert Business Broker, I can immediately spot if a Business owner is not ready to sell. Often, I tell Business owners that I will not sell their Business at this point in time. Many reasons come into play in my decision to not work with someone to sell their business.
A competent business owner should always have an exit strategy (which is NOTHING more than saying “I am going to sell in ______ amount of time”) when it comes to his Business. Go ahead and face it now, there will come a time when you will want to sell. But are you ready to sell your business? And is the Broker going to view you as a valuable partner in the process of selling your Business? The below subjects are important to consider.
Increase cash flow
The bottom line when discussing the value of a Business is 3 things
CASH FLOW
CASH FLOW
Last but not least….CASH FLOW
Cash flow is equivalent to location in real estate. When it comes to Business, profitability is the only thing that matters. Cash flow is the bottom line of earnings and perks the owner gets from owning the Business. All too often Business sellers come to Peterson Acquisitions when their cash flow is in DECLINE. This is a major mistake. WHEN YOU ARE DOING WELL IS THE TIME TO SELL! If your cash flow is headed south, your Business is simply not going to sell for the value it once could. Buyers are leery anyway since they feel that sellers must be hiding something, or the Business is not competitive in the market and who would want to buy a sinking ship?
Get out of your own way
The Business owner who reminds people of “Norm” from the sitcom “Cheers”—where everybody knows your name—may be great for business but could be harmful when it comes to selling the business.
In order to maximize the market value of a business, owners have to disassociate themselves from the business and have customers, employees, and suppliers sign on because of the business, not the owner.
The best method of removing yourself from a business is to train your right-hand person to take on some of your responsibilities, including dealing with customers, employees, and suppliers.
Have a Team
In addition to removing yourself as the main person, developing a strong tribe within your Busines is equally important. A buyer can review financials and inspect equipment and inventory to get comfortable, but it is who is on your team that they will really want comfort with. One of the major factors that will move this value up or down is the quality of the employees. How long have they been there? Will there be key employees to assist the new owner with the business? Who can move up with a little more salary and take on more responsibility?
Replace family members
Having family members work in the business is one way to build a business. It could also be a huge detriment when the time comes to sell. A prospective buyer will be very concerned if a seller’s wife, son, brother, etc., because he is skeptical of employee retention. Even if the family members agree to stay on after the business sells, the buyer might still have other doubts.
Reduce the amount of Untracked Owner Perks
Most small businesses owners “live” out of their business. This could reflect poor earnings. This does not mean the cash flow to the owner is low since the difference is usually in salary and owner perks. These owner perks can include health insurance, auto insurance, meals, entertainment, travel, and personal purchases. Even though these perks are valid, often buyers have reluctance on thinking they are real, and banks have hard time lending on a deal that has too many owner perks so the seller could avoid paying taxes. The cleaner the books, the cleaner the sale.
Sell off the unwanted inventory
When marketing a business, it is difficult to obtain a price based on the assessment of assets if they are not necessary for the operation of a business. By selling the assets in advance, the business owner gains added revenue from the sale of assets and a better business package to sell. The sum of the parts should always be more than the whole when it comes to selling unnecessary assets and then the business. Get rid of the unnecessary items you have accumulated, tighten up.
Reduce inventory
Like unnecessary assets, inventory should be kept at a minimum in order to help keep costs low and help you set a selling price at a level to maximize the number of potential buyers.
A buyer will not pay for useless inventory. Before closing, most buyers will take inventory to ensure that what he is paying for is there and in good condition. A buyer will only want the inventory that is necessary to run the business. If inventory levels are too high, the buyer might not be able to substantiate or afford the sale price with the excess inventory included. Banks often will not lend on a Business with too high of inventory as well.
Diversify the customers
Do not have all your eggs (clients) in one basket. Customer concentration can be a DEAL KILLER in any Business sale.
If you are ready to sell your business contact Peterson Acquisitions for a free consultation.