Looking to exit your business? There are two must-haves you need.
See, a business will only sell if it’s sellable.
What does this mean?
It means that your business is making good revenue and profit, and has a proven path to future growth.
In other words, it’s attractive to buyers.
If your business isn’t attractive to buyers, you won’t be able to exit with a bang.
In this article, we’ll be taking a look at the two must-haves your business needs in order to allow you to exit the way you want to.
In other words, you’ll get the price you’re looking for, and which reflects all your hard work, time and commitment.
The easiest way to prove to potential buyers that your business is worth their money is by showing them financials that are a) clear and b) complete.
This means financials that are:
This goes for:
In short, your financial statements and books need to show potential buyers that your business is valuable (and sellable), while your balance sheet needs to show them clearly your liabilities and assets. This ensures that they know exactly what they’re getting, and will thus help them make a decision.
Consider this for a moment: A business is typically valued at a multiple of their net profit over the last year. If you don’t have complete financial records that tell the full story, a potential buyer won’t be able to assess whether or not you’re telling the truth about your business’s valuation. All they’ll have to go on is your word.
And who buys a business based on the owner’s word?
Sometimes, a business owner who’s selling their business might be a little bit apprehensive about handing over their balance sheet to a prospective buyer if their business has debt.
It’s okay to be worried about this. But here’s the thing – some debt is fine as long as you’re open about it. If you aren’t, a buyer simply won’t buy your business.
How long do your current financial records need to stretch back?
Ideally, you should have financial records that cover the last twelve to twenty four months. However, this depends on how much your business is valued at. The higher its valuation, the more extensive your financial history needs to be. This is because the buyer is obviously taking a bigger risk, and therefore they will want to see more detailed, extensive financial records. If you don’t make this information available, they simply won’t buy – and you won’t exit.
Naturally, clarifying your finances is no easy task. You could do it all yourself, but it helps to work with a bookkeeper, or even a broker, who will value your business and keep track of your finances. Numerous small business owners who try to do it themselves mistakenly assume they’ve got everything in order, but when it comes to the crunch, their numbers are incorrect. This alone can cause distrust among potential buyers.
If your business is dependent on you in order to run smoothly and successfully – in other words, you have to be there at all times, overseeing operations – it isn’t a sellable asset. And that means that you can’t exit just yet.
Why is this?
Picture it. A prospective buyer purchases your company … but then discovers that they can’t run it unless you’re there.
Except, you’re not there anymore. You’ve moved onto your next venture!
So now what?
Essentially, before you can exit your business and get a good, fair price for it, you need to make yourself irrelevant. This sort of thing is hard to swallow for some entrepreneurs, but unless you automate the core aspects of your business, you won’t be able to sell it.
Automation does two things. Automation:
This is because an automated business is one that reduces the level of owner involvement. This means that, not only does it no longer require you to be there 24/7, it also won’t require the next owner to be there 24/7. After all, a prospective buyer isn’t looking for a full time job here. They want to take over a business that won’t demand their blood, sweat and tears.
If you haven’t automated your business and made it independent, it’s time to start automating specific tasks. There are a number of tasks that can be automated to boost efficiency and your business’s value. These include but are not limited to:
Essentially, you’ll have a number of tasks and processes that need to be automated so that, when a new owner takes over, they won’t have to do these things manually.
If you’re not sure which tasks to automate, here are some things to look out for:
Inventory management is especially important. If your eCommerce store still relies on yourself and friends and family members to package and ship your products, you’ll need to establish a relationship with a 3PL before you put your business up for sale. While you might enjoy packing and shipping yourself, it’s unlikely that the next owner will. And a 3PL fulfilment service takes care of your whole supply chain, including packaging and shipping your products.
Before you exit your business, you have to make your business saleable. Use the tips in this article to get your business in shape so that you get the sale you deserve, before working with a broker to get the sale over the line.
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