According to a study published by CNBC in the spring of 2019, nearly 80 percent of small-business owners plan to sell their business to fund most, if not all, of their retirement. That places a lot of pressure on getting the highest price possible, and it is quite the shock if the market value of your business is short of what you may have hoped (or needed).
Add to this the tendency of many business owners to overestimate the value of their business, and you have a high-stakes situation that needs some advance planning. Getting a business ready to sell takes time, and you should be preparing for it at least three to five years beforehand.
Here are five steps you should take to get the most value out of your business:
1. Get an objective estimate of your business value. It may show you some areas where you can focus your improvement efforts. You can work with a CPA and/or attorney with experience in business valuation, or you can hire an appraiser or business broker.
2. Compare this value with what you feel you need for retirement. If your estimate comes up short, you will need to find ways to either raise the value of the business or otherwise adjust your retirement expectations.
3. Be sure your financial books are in order. Any buyer worth their salt will want to see at least three years of clean financial statements as part of their due diligence. By the way, show some profit. Many businesses work to minimize their tax burden each year, and while this is understandable, who wants to buy a business that looks like it has been consistently showing negative net income?
4. Create a succession plan that helps define the transition process. Who will fill your shoes? If you are vital to the business, what happens to its value when you are no longer there?
5. Focus on finding ways to improve the performance of your business. Processes, procedures and systems are the guts of a smoothly running enterprise, so don’t overlook how critical they are to adding value. From cash-flow management to staffing to updating equipment and infrastructure, find ways to make your business more appealing to your ideal buyer.
A buyer doesn’t want a fixer-upper. They want a well-run, profitable business that provides a reasonable return. Plan ahead for the best outcome.