Are you thinking about selling your business in 2024? Despite a decline in business sale activity in 2023, we anticipate a resurgence in 2024. The initial impact of rising interest rates, which dampened buying activity, has now stabilized. The availability of capital for business acquisitions remains, and there is a backlog of demand from buyers who have yet to make significant purchases. However, buyers will proceed cautiously and be more selective in their target choices. Sellers should also be prepared for a more rigorous due diligence process during the sale.
Every business owner will eventually exit their business. Even if you are unsure about selling in 2024, it is crucial to start planning now. By preparing in advance, the process can be smoother and often leads to a higher value from the sale. The first step for business owners is to ensure their financial records are well-organized.
Preparing to sell your business involves more than just tidying up your financial records. Having well-maintained books can greatly increase the attractiveness of your business to potential buyers. It provides them with a clear understanding of your financial health, making the valuation process easier. Additionally, clean books can speed up the due diligence process and minimize the risk of renegotiation. It also showcases your professionalism and organizational skills, allowing you to command a higher sale price.
Cleaning up your financial records may involve:
- Standardizing your internal bookkeeping and accounting methods
- Separating personal finances from the company’s finances
- Reviewing internal expenses, especially owner bonuses, perks, and benefits, against industry benchmarks
- Organizing financial records
- Reviewing and tidying up financial statements (or creating them if you don’t usually prepare them)
- Documenting the dollar value of assets and liabilities (including intellectual property)
Gaining Insight into the Information Buyers Seek
The due diligence process is crucial in every business sale, yet many business owners underestimate its importance. It can be demanding and time-consuming, often exceeding initial expectations. Buyers, especially their lenders, will need access to your financial records. Adequate preparation for this process can be the deciding factor between a successful deal and one that fails.
Key financial information that you should be prepared to provide includes:
- Financial reports for the past 3-5 years
- Tax return records
- Records of tax payments, including payroll and sales taxes
- Bank and credit statements
- Employee and payroll records to verify payroll costs and compliance with labor regulations
- Proof of business insurance policies
- Physical inventory counts
Providing these items serves the purpose of establishing credibility and offering an accurate financial overview of the company.
Understanding the Broader Financial Picture
When selling your business, preparing your financial records is just the first step. A well-prepared seller goes beyond that and understands the broader financial aspects of a sale transaction. This understanding will not only facilitate negotiations with potential buyers but also help you navigate the sales process more effectively.
- Work with a tax advisor to devise the best strategy for minimizing your tax liability.
- Identify the key revenue-generating aspects of your business.
- Assess the profitability of your business and identify the most and least profitable areas.
- Determine which aspects of your business are likely to be crucial to the buyer’s lenders or investors.
- Decide on your post-closing role in the business and establish your compensation plan.
Planning for the sale of your business should start early, considering the various steps required to finalize the deal. This includes organizing your financial records, assessing the overall financial well-being of your business, gathering essential information for potential buyers, negotiating the deal terms, and ultimately closing the sale. Properly packaging your business is crucial for a successful transaction.
The Jacksonville Business Broker, John Geiwitz, is a Certified Business Intermediary that brings almost two decades of successful business sales and M&A experience. If you are considering selling your business in 2024 or in the future, John can help you start the planning process to ensure you are prepared and solidify the best deal for your company!
Contact The Jacksonville Business Broker today for a complimentary consultation.
