When it comes time to sell your business, this can be an exciting time. You may already think of yourself on the beach and out the door, but there are other things that need to take place. Before you start thinking about yourself on the beach with an umbrella drink, you need to find a buyer for your business. Finding buyers isn’t always as easy as it sounds. If you don’t want to do the work yourself, you might want to find business brokers that can help you. In this article, we are going to talk about five rules for selling a business.
- Determine Your Company’s Value
Before selling your business, it is important to have a true idea of what your company’s value is. You can’t put it up for sale for what you think it is worth. You need to know the market value for your company. There are multiple ways that you can determine the value of your company and here are some of those ways.
Base the value on revenue. Look at the annual sales numbers and calculate through a business broker how much a typical business in your industry would be worth at that level.
Use earnings multiples. Measure the value of your company by finding the price to earnings ratio which is also known as the P/E ratio. Estimate how much money the company is going to earn over the next few years. Let’s say a normal P/E ratio is 15, and the projected earnings are $200,000 a year. If this is the case the business would be worth $3 million.
Calculate the value of assets. Add the value of everything the business owns including all equipment and inventory and subtract any liabilities or debts. The business’s balance sheet is a good start point for the value. The business is likely to be worth more than the net assets. Try looking at how much earnings and revenue you can expect to get a more accurate number.
- Make Sure Your Financials Are in Order
Before you start trying to sell your business, you need to make sure your financials are in order. Potential buyers don’t want to deal with problem businesses and are looking for as much transparency as possible. If you want to keep from raising red flags, you should work with an accountant so you can show clean financials back at least three years. All of your income should be accounted for.
If your financials aren’t in order, you may lose the sale with a skittish buyer. If someone buys your business and the financials were not accurate, you are likely to face litigation. If your financials aren’t in order, it may also lead to a low valuation.
- Prepare Your Exit Strategy Beforehand
There are multiple reasons why you may want to exit your business, but it is important to prepare your exit strategy before you are ready to leave. If you see an employee you trust that you believe would do well with the business, you may be able to match them with the business before you are even ready to sell. If you sell to an industry outsider, you are going to need time to show them the ropes.
The more you can prepare before you are ready to exit your business the less stressful it will be. Preparing to exit your business before you are ready to go could also help you get a better price for your business as well.
- Boost Sales
Buyers want to make sure they are buying a winner. If your sales are declining, that is not the time to sell. You should also make sure that no single customer represents the majority of the company’s business. Increase marketing and sales efforts and make sure sales are increasing so your company is more attractive to buyers. Look at areas where you can save on expenses and ways you can boost your revenue, and you will see that you have a more attractive offer for potential buyers.
- Find a Business Broker
If you aren’t a great salesperson, you should look into hiring a business broker. While this isn’t the only reason you might want to consider bringing on outside help to sell the business, it is a good one. If your company has less than $5 million in annual revenue, you may want to find business brokers that charge a small commission on the sale price. The broker will usually prepare the prospectus and has a large network of people that are interested in buying businesses.
Business brokers can reduce the amount of stress that comes along with selling a business. If you aren’t sure about how to find the right person to take over your business, then a business broker may be what you need.
Before you hire a business broker, you need to make sure to ask them about their previous experience and how they plan on helping you sell your business. You shouldn’t be shy about asking for recommendations either.
Conclusion
When you are selling your business, you don’t want your emotions to get in the way. Make sure you are ready to sell your business and know how much it is truly worth without emotions attached to it. These five rules for selling a business will help you get started on your way to cash in your pocket.
