By Bigg Success Staff
Bigg Success in Business
You’ve reached the point where you’re considering selling your business at some point. How do you get the maximum value from this asset into which you’ve poured your heart and soul?
Ideally, you have about three years to get your business ready. If you’re thinking sooner than that, don’t despair! You may be fine. Rate your business against these tips to know if you’re ready. If not, get to work quickly to align your business with these seven tips.
#1 – Think turn-key operation
Could you hand the “keys” to your business over to someone without the business skipping a beat? Look critically at your operation. If the business practically runs itself, you’re ready to sell. If not, identify what needs to be done to get there.
#2 – Develop a succession plan
This is closely related to Tip #1, but at the highest level. Who is in charge when you’re not there? Do they have the skills to do your job permanently? If not, identify what it will take to get them to that point or find someone, inside or outside the company, who can be trained to take over.
#3 – Refine your customer base
Is your customer base growing? That assures your buyer that revenues are likely to keep increasing.
What portion of your business is from repeat customers? If you have a lot of repeat customers, your buyer knows that revenue is stable.
Finally, what portion of sales comes from your top customer? The more diverse your customer base is the less risk your buyer will see in your business.
#4 – Maximize your operating profit
Operating profit is what’s left over after you subtract all your costs, except interest expense and income taxes on your business, from your sales. This is sometimes referred to as EBIT (earnings before interest and taxes) or EBITDA (earnings before interest, taxes, depreciation and amortization).
Ultimately, your buyer is likely to base his or her price on your operating profit. Take a note from public company executives and think shorter-term. Your horizon is whenever you plan to bring the business to market. Your decisions should maximize your operating profit by that time.
#5 – Clean up your Balance Sheet
Ideally, when you bring your business to market, there is no long-term debt. This assures buyers that your business has sufficient cash flow to pay off debt and/or fund projects without it. It also gives you more flexibility in structuring a deal with your buyer.
#6 – Invest in good financials
Most buyers, especially sophisticated ones, will prefer to see financials that have been prepared by a CPA. There are three levels of financials:
- Compilation – a CPA prepares your financials with information you provide.
- Review – a CPA prepares your financials after investigating your internal procedures.
- Audit – a CPA prepares your financials after significant internal and external checks.
An audit will provide your buyer with the highest level of assurance. It is also the most expensive. So it may not be worth your investment, depending on the size of your business. Talk with your CPA to determine what’s best for you.
#7 – Invest in taxes
This goes against the grain for a lot of business owners. For years, you’ve done everything you legally could to minimize your taxes. Now you’re supposed to “invest” in them?
The answer is a resounding, “Yes!” You may be taking out some perks that you know aren’t necessary for your business. But do you expect a buyer to believe that? Would you? Show a higher income and pay more taxes. It’s highly likely you’ll make it up in what a buyer will pay for your business.
Getting your business ready to sell is as important as building your business in the first place. If you do it right, you’ll get the most for it because you’ve positioned it as a good investment for your buyer.