After years of building a business, sustaining it through the lean times and enjoying the bounty during the boom years, an owner will likely reach a point in his or her life where it’s time to sell the company. Preparing for an exit from the company requires additional time and effort from owners, on top of the normal day-to-day tasks of operating the business.
“Business valuation multiples rose about 10 percent year over year.”
While the sale of a business can be a significant undertaking, now is a great time to explore the process. According to the Second Quarter 2014 Market Pulse Survey drafted by Pepperdine University and the International Business Brokers Association, business valuation multiples rose about 10 percent year over year while buyers have gained confidence. Combined, these factors are creating an ideal environment for owners looking to sell their businesses.
Here are five tips to help streamline the sales process:
1. Keep the engine running
Some owners might be tempted to “check out” before the actual sale or transfer of the business is officially complete, particularly during transactions that appear to be done deals. Business owners must maintain company operations throughout the transaction process, which typically take months to complete. If an owner is not fully engaged throughout the entire process, their inattention can lead to a dip in sales that impacts the company’s valuation.
2. Determine key players
In many cases, a business owner will inform members of the management of his or her plans to transition out of the business prior to beginning the process. In order to ensure a smooth process, key executives, such as the President and CFO, need to be committed to supporting the deal process so they can help prepare relevant financial reports, company facts, and future projections in a timely manner.
3. Get your books in order
Financial statements are a crucial barometer for the future success of a business. Buyers will use profit and loss statements, quality of earnings reports, and revenue projections to assess the business. These data points illustrate the financial story of the business, and are helpful in determining the company’s value as well as any lingering liabilities.
4. Hire an advisor
Hiring a qualified advisor helps business owners set clear expectations for the deal process, identify potential buyers, and manage unexpected challenges. In the early stages of the process, an advisor can help owners interpret comparable sales in their industry to gain a better understanding of the market for their business and set realistic expectations for the purchase price of the company.
5. Define your horizon
Selling a business does not require a complete detachment. In some instances, maintaining shares allows the owner to keep some skin in the game and hold onto a piece of the company. According to Texas Enterprise, a business and public policy publication from the University of Texas, owners who keep even a tiny fraction of equity in the company can reduce risk for the buyer and potentially generate a higher purchase price.
Interested in learning more about exit strategies? Flip through the SlideShare below: