Over the many years in the business brokerage business the most critical mistake I’ve seen here at Central Florida Business Advisors from potential sellers is they DID NOT properly prepare their business for a sale.
There are several keys things owners of small businesses should do long before they entertain the thought of transitioning their business. The exit strategy should start a couple years before they list the business for sale.
1) If at all possible, try to sell the business when things are going well and trending up. Although it defies human nature, the best time to sell and to maximize your compensation for your business is when your business is doing well.
2) Eliminate, or at least minimize, the businesses dependence on you as the owner. Buyers will pay a premium for a business that has established management in place and is NOT dependent on the owner for customer retention. Too many small businesses are dependent on the owner’s presence, and hence potential buyers can foresee the customer base leaving as the owners walks out the door.
3) Take a sharp pencil to your costs structure and operational efficiencies. Ideally, you want to have higher earnings when it is time to sell. Clean up the books! Most buyers will pay a price based on a multiple of earnings of the performance of the business the past 12-24 months.
4) Buyers want to see a diversified customer base, one that is not too dependent as a percentage of sales on a few key customers. Some customer concentration may be unavoidable, but try to position your business so the customer base is varied as much as possible through continued marketing efforts. The worst thing you can do for your business when you have decided to sell is to “check out” physically or mentally running your business. Continue to run your business as if you need to run it for the next 10 years.
5) Although buyers pay a price based on past performance, they will buy based on future projections. Have a reasonable, believable and achievable forecast for the business moving forward.
6) If you do not have them, develop Operations Manuals and Employee Handbooks. Potential buyers want to see systems in place that will help with a smooth transition
7) Get the right professionals involved in the process. Make sure you have a competent attorney and accountant.
8) When it comes time to list your business, we at Central Florida Business Advisors can assure you we can help you transition your business in a professional, confidential manner and make the sale go smoothly. We have personnel that have been involved in business advice and business sales as brokers for over 25 years.
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