As a business owner, you will, at some point, likely make the decision to sell your business. Whether you have owned the business for many years or only a few, you will probably wonder if it is a good time to sell many times along your journey. People sell businesses for various reasons. Most of the time, I see the catalyst being retirement, health, disputes, burnout, stress, relocation, and/or financial hardship.
There is one thing that is always true.
The best time to sell a business is when it is profitable and growing.
A good business broker will explain all of these to you and dig deep to discover every possible add back and add them back on your cash flow statement.
Good Records
To verify the value of your business, among other things, you must have good, accurate financial statements. It is typical to show income statements and tax returns for the past three years that demonstrate a constant level of income and growth each year. The business will be worth more if the financials show growth.
If you have not shown all your income in order to pay less taxes, the business will most likely be worth less, as the cash flow will be less. Trust me, I have valuated hundreds of businesses, and this is more often the case than not. Sometimes my advice will be to for you to keep the business for a couple more years and show all your income.
When I meet with Sellers, I like to explore all options and help you decide the best strategy. There are expenses we can add back to your bottom line, giving you greater cash flow and, ultimately, a higher selling price. Examples are personal expenses, one-time expenses, and expenses not necessary for the operation of the business. It is important to remember you must be able to prove all add backs, and a provable set of books is a top priority to a Buyer.
Control Your Inventory
Is your inventory up to date?
Your inventory turnover will vary depending on the type of business, but inventory is usually expected to turn over at least once every year.
I want to share an important story with you – A couple of years ago, I performed a Broker Opinion of Value (BOV) on a very large business with a huge amount of inventory. After completing the BOV, I determined the enterprise value of the business was in the multi-million range, but the inventory was worth much more. I explained to the owner, who had started the business and successfully operated it with great profit for many years, that he needed to sell off a huge amount of inventory before he listed the business for sale. It is extremely unlikely that a buyer would be able to justify purchasing the business with millions of more dollars in inventory than the business was worth.
This practice messes up our ever-important “multiplier” and is a reason a lot of good businesses get listed but never sold.
He explained to me that people went to his store from many miles away, as they could always find what they needed. He understood why I could not list the business but was unwilling to sell off any inventory. I later learned he finally let his nephew take over the business, with an agreement to make payments to him until paid in full. This was an opportunity anyone would seem to appreciate. The nephew sold the inventory and never paid him for the business, eventually closing it.
All those years as an extremely successful businessman left him nothing for his retirement. Make sure your inventory is manageable and ALWAYS require a large down payment at closing.
Side note: We also need to address how you handle inventory on your Balance Sheet. This Broker has seen this overlooked detail kill a lot of deals, so we need to sit down and talk about this long before we consider finding you a buyer.
Ready to discuss the Best Time to Sell Your Business? Email Jacksonville Business Broker, today!
Furniture/Fixtures & Equipment (FF&E) in Order & Well Documented
Is your equipment in good working condition?
Remove equipment that hasn’t been used for a long period of time, and have everything required to operate for the business current. Spend a little time cleaning and organizing to make your business looks inviting. Remember that your business has to be able to run without you. So, if a machine, or important piece of equipment has a quirk, it needs to be noted somewhere. The best time to sell your business may feel like today, but it is actually when everything is transferable, and still successful. Not every business can run without the owner, if the correct preparations have not been made.
Paradigm Shift: Start Thinking Like a Buyer Now!
This is one of the last things I find many sellers do.
Start thinking of ways your business could grow and be able to share that information with a potential buyer, because a buyer will be thinking of expansion opportunities to increase profit. A business must make enough to pay both the debt service and a living wage to the new owner. A business broker can valuate your business and help you determine a fair asking price. Putting yourself in the position of your buyer will place some reality on a fair asking price. The critical baseline for pricing has to be: Would you have enough profit to service your debt and pay yourself a living wage if you were buying your business?
The Best time To Sell Your Business
As stated earlier, the best time to sell a business is when it is profitable and growing. If you are ready to sell or think you will be in a few years, I would be honored to guide you with the proper steps to take to prepare. Please reach out to me when you are ready to talk further – Call Now
