Preparing Your Business For Sale – How to Cash Out

Savvy business owners know that to run a successful company you need to be a great marketer, control your costs and deliver unbelievable customer service. However, when it comes time to sell your business, it’s important to plan a strategy that will leave you and your company in a great position. Creating and implementing an exit strategy for your business can provide you with a lot less stress and peace of mind knowing that when the time comes to sell, you’ll be ready.

The sale of your business should be a planned process to yield you the highest possible price for the company; not a knee-jerk sale based on uncontrollable circumstances like health problems, financial issues or an untimely death.

Developing a successful exit plan should begin well ahead of your targeted exit date (I recommend at least three years). Here are some things to consider as you get started:

Get your personal financial picture in order.
As a future seller, be sure that you have adequate protection with life insurance, disability insurance and even business interruption insurance to protect your company in the event that a disaster occurs.

I also suggest meeting with a certified financial planner. Often a seller’s largest asset is their business. If an owner is forced to sell after several months or years of minimal profitability, they won’t be able to sell for the maximum price and may not be able to exit with the cash they had anticipated. A planner may recommend building up cash reserves or acquiring real estate to balance out your portfolio.

Understand what buyers are buying.
Most business buyers are first and foremost buying cash flow or net profits. Demonstrate the financial strength of your business by supplying them with (at minimum) 3 years of profit and loss statements, 3 years of federal tax returns, equipment list, inventory list and a copy of the facilities lease.

Equally important is the building lease. When a business changes hands, an important element for a new buyer is to be able to secure a long-term lease. Lease negotiation can make or break a transaction so it is best to know the landlords intentions as soon as you make the decision to sell.

I also recommend systematizing your business by creating an operating manual for each area of your company. Standard operating procedures provide a buyer with an existing system for success and will allow you to easily transfer information to the new owner.

What’s it worth?
Now that you understand what a buyer wants, you need to determine what you as the seller want. Every seller must ask themselves, “How much cash do I want to receive at the closing?” or “What is my premium price?”

A key component to achieve the highest price is for the seller to offer to carry a promissory note, making the seller the banker for a certain portion of the purchase price. By offering to carry a note, the seller demonstrates to the buyer that he or she believes in the business and that they will remain financially invested in the success of the company after the sale.

When pricing the business for sale, the more reasonably the business is priced, the faster the business will sell. Be sure to enlist a certified business appraiser or an experienced business broker to provide you with an opinion of value. By adding the value back to the financial statement, a buyer will have a better idea of how much income he or she can expect to receive when they take over the company.

After receiving a valuation of your company, compare the current value of your business to your proposed exit date and premium price expectations. Is your premium price realistic? Is the time frame realistic to reach the necessary sales levels to achieve that price? In order to reach your goals, all elements must come together.

Getting your maximum price.
If you determine that you will not be able to achieve your desired price, you must begin to implement strategies for change as soon as possible. Start with a simple SWOT analysis looking at the strengths, weaknesses, opportunities and threats of your company. Necessary strategies might include creating a marketing plan to increase your sales or a cost containment strategy to reduce your expenses.

As a business owner, you deserve the highest possible price for your company. Plan your exit strategy with the same amount of thought and detail that you plan your customer service strategy or craft your marketing plan. After all, all business owners will exit their business whether they plan for it or not, and a good plan can be the difference between the “retirement” of your dreams or just a long vacation.