Ready To Sell Your Business? 3 Musts for Business Owners Before Going to Market

Many of my fellow Baby Boomer business owners are eager to retire, but most of us start planning to sell far too late in the game. Ideally, you want to start preparing for your exit five to seven years before you’re ready to exit. Why? Because attracting the best buyers means putting your best foot forward.

Think about it: When selling a home, a realtor may suggest you make some changes to get the house ready to list. Sure, you can put it on the market with paint peeling and clutter filling every corner of every room, but doing so means you’re selling your home at a discount. To bring in top dollar you may have to tackle some basic repairs, invest in a deep clean, and spruce up the rooms with fresh paint and staging.

Guess what? Your business isn’t any different.

You may have a business you want to sell, but does anyone want to buy? And does your business carry enough value for you to experience the retirement of your dreams?

To answer these questions, you need to pursue three things:

1. Market value assessment
2. Personal financial plan
3. Financial systems analysis

These exploratory exercises give clarity to your circumstances, allowing you to negotiate, sell, and retire with confidence. (And yes, Dear Business Owner, you deserve a prosperity-filled retirement.)

Let’s dive in.

Know Your Potential Buyers With a Market Value Assessment

Many business owners think they need a valuation when preparing to sell, but a valuation looks at your business through too narrow of a lens, using your discounted cash flow to inform your business’s worth.

A market value assessment is both deeper and broader.

Market value assessments tell you who your potential buyers are and how much value they’d place on your business (because value is, after all, partially subjective).

Different buyers may mean different sale prices. Selling to the highest bidder isn’t always the right decision for you. There are many things to factor into a sale beyond price point, but before you can explore the nuances of your options you need to know who you may have to choose from.

Potential buyers include:

·         Your employees via an ESOP (Employee Stock Ownership Plan),

·         Your team via a worker-owned coop,

·         A like-sized business,

·         An upstream company,

·         A next generation transition.

Market value assessments gauge which potential buyers may pan out given the current economic climate. They’re not static evaluations, but instead are dynamic conversations that factor in the current state of your industry.

Instead of revealing a single number (as is the case with a business valuation), a market value assessment reveals your options.

Understand Your Minimum Sale Price With a Personal Financial Plan

So, you know who may be interested in buying, but do you know how much you need to make from your sale to prosper post-exit?

How can you know your sale price if you don’t know how much money you need to maintain your current or post-ownership lifestyle?

Many business owners don’t set aside a lot of money. Instead, they opt that extra cash back into their business, viewing it as their primary asset. For example, it’s not uncommon to meet a business owner with a $15 million company, but just $300,000 in savings.

Before you can know if selling your business is even an option, you need to know how much money it takes to fund your post-ownership lifestyle. It sounds so obvious, but it’s a fact that is lost on many. That’s where a personal financial plan comes into play.

How much do you need set aside to live the life of your dreams? Without a financial plan, you’re guessing.

The beauty of a personal financial plan is that once you know how much capital you need to run your life, you become empowered to choose from your options of buyers with confidence. You’re also emboldened to hold out for the right offer.

Perhaps you dream of selling your company to your beloved employees. It’s a purpose-filled idea, but often results in a lower sales price than if you sold to an upstream competitor. When you develop a personal financial plan, you learn whether or not you can afford to take the lower, but more desirable deal.

It's possible you may not be able to afford your preference based on your current circumstances. That reality presents you with two options:

Do you move forward with selling to the buyer whose sale price allows you to retire now?
Do you develop a growth plan so that down the road you can sell to the buyer of your dreams?

Whether you’re hoping to take home top dollar or looking to pass on your legacy to the next generation, having a clear financial picture of life post-ownership is an essential part of the process.

Ensure Your Business Is Worth Buying With a Financial Systems Analysis

Nobody wants to buy a business with sloppy bookkeeping. That’s just one of the many reasons why a financial systems analysis is an essential step when preparing to sell your business.

So, what exactly is a financial systems analysis? It’s when our team at MACKEY dives into your books, looks through your financial systems, and recommends any needed changes to ensure your data is accurate and informative.

Sometimes this means cleaning up your books. Other times it means identifying specific metrics to demonstrate your growth and financial viability.

Doing this provides accurate data to drive your decision-making, but it also shows potential buyers that you are an organized and well-run operation.

Essentially, a financial systems analysis ensures you’re a business worth buying.

Don’t be fooled: This isn’t always an easy step. Sometimes our analysis reveals significant structural issues that need repair before you can go to market. But knowing what needs to be fixed (and taking the time to course correct) will allow you to put your best foot forward when it’s time to sell.

Selling Isn’t Just for Boomers: The New Retirement Is Accessible at Any Age

A growing trend is emerging and it’s one that excites me: Gen X owners (and younger) are thinking more proactively about exit strategies. Some owners are even thinking about their exit as they scale. It’s a smart strategy and one that can potentially bring significant returns.

Whether you’re a thriving entrepreneur at just 25 years young or have invested sweat equity in your business for decades, selling your business is about knowing your options, understanding your financials, and building a business that’s worth buying.