Some Things to Consider
When Selling Your Business
All business owners put in a large amount of effort, constantly worry, and work past normal hours to try and make their business thrive. You are not alone in this; all owners of businesses go down the same road. We have sold many companies, coached an even larger number of them, and worked with plenty of clients who were planning to exit and sell their business. There is a pattern that businesses on Main Street and in the lower mid-market follow when they exit and sell their business successfully.
As a business owner, it is imperative that you have a firm understanding of your business' numbers. This includes income statements, balance sheets, cash flow statements, and tax returns. By having a clear understanding of your business' financials, you will be able to catch and correct issues before they spiral out of control. Do not shy away from your numbers; instead, embrace them and make them an integral part of your business life. Most business owners are unaware of what Seller's Discretionary Earnings or Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) are. If this is you, take some time to educate yourself on these concepts. They will play a big role in how your business is valued. We will help you determine the real value of these numbers and how they will influence the sale of your business.
You also need to document the things you do in writing and make sure your employees follow the processes and procedures you put into place. When someone buys your business, things like internal knowledge are terrible to have. Documented procedures are amazing, allow for consistency in the way you do business and help with employee turnover, as new employees will have a process to follow and procedures to help train them.
Try not to let the business revolve around yourself. Many entrepreneurs enjoy being the main point of contact and the only authority on sales and judgement calls. However, you will NOT be included in the sale of the business. The more you make the business about yourself, the less attractive it becomes to prospective buyers. The term “absentee owner” is very telling when selling a business. By hiring competent staff, teaching them well and encouraging their growth, you will make your business more valuable and increase the chances of a successful sale. You should be able to take a month-long break without the business skipping a beat.
Avoid being too cunning with your taxes. You would be surprised at the lengths some business owners go to in order to avoid paying taxes. We see it all the time. All the personal expenses they run through their business, all the tricks they do to avoid paying taxes. Guess what? Banks, when lending money, lend off the tax returns, mainly. So if you are showing little to no income on your taxes, don’t expect a bank to rush and lend a buyer money to buy your business.
Finally, have a retirement or exit strategy for your business, and know how you want to live. We see many business owners who say they want to retire but have no idea what they would do afterward. Not having a plan could lead to one thing: misery. For many business owners, we value ourselves on our business accomplishments. Our "hobbies" are our business, business, business—in that order. When that is no longer there, former business owners often struggle with trying to figure out what to do next.