Start taking steps now to prepare your business to be sold later.
Interesting Fact: According to BizBuySell.com, second quarter small business transactions reach pre-recession activity, up 11% over Q2 in 2013.
Interesting Fact: In a recent survey, more than 70% of brokers expected the growth trend of small business sales to continue, with more sales in the remainder of the year than have already closed in the first half of the year.
How to sell a business?
The first key is to make sure you’re ready. This doesn’t mean have a For Sale sign up and be ready to sign on the dotted line, but rather you need to have taken steps to be prepared. Even if you don’t sell, these steps will help your business run smoother and more efficiently. The first step is to make sure the business isn’t dependent on you. Obviously, buying a business that can’t function without you isn’t worth much. The next thing is to get your books organized. Any potential buyer will want to evaluate all the numbers and if you don’t have them clean and organized it can deter buyers. Honesty and transparency is vital to establishing a relationship of trust. The last thing is to make sure you know what your business is worth, which will be addressed in more detail below.
What is a Transaction Advisory Firm?
A business broker acts much like a real estate agent, in that their primary role is to list businesses for sale to attract buyers. A Transaction Advisory goes far beyond the scope of traditional business brokers in that they will typically help the seller determine market feasibility and preparedness to sell, assist in packaging and market strategies, help perform business valuations and tax analysis’s, assist in screening and buyer matching, take the lead in due diligence, negotiations and structuring, and in some cases help to find funding for the transaction. As a Transaction Advisory, we assist with each stage of the exit strategy all the way through to a successful closing, while defending our clients’ position and maximizing value.
When should you sell your business?
Most Advisors believe there are only three times to sell your business. When you want to sell, when you have to sell, and when they settle your estate. By far, the best time to sell, is when you want to sell. Properly planning an exit strategy is critical. Also, from a timing perspective, the sale almost always tend to yield substantially more when the company is trending up, not down. Trying to sell a business that is trending downward is not only difficult, but will typically yield the seller pennies on the dollar. So don’t wait until you have to sell. Regardless of your reasons for selling, it is important to set exit goals and review them with your transaction advisor so you can time the sale for maximum value.
How to value a business
Valuing a business can be tricky. There are many factors which could affect fair market value, and ultimately what you put in your pocket. Can the business run itself with your absence? Are your financials clean and well documented? What are past, present and future earnings like? What is your customer concentration like? How is your industry trending? What’s the competitive environment like? These and many other tough questions inherently affect fair market value, and what a prospective buyer is willing to pay for your business. A Transaction Advisory like Trinity can assist in properly valuing your company and help to determine deal structuring to increase your total payout.
What taxes are involved in selling a business?
Each seller will have their own set of unique circumstances which may affect the sale of their business. How a business if formed; the seller’s individual tax rates; how the assets are allocated; how the transaction is structured and negotiated; does the seller intend on performing an ‘like-exchange’? There are a myriad of questions such as this to consider when trying to mitigate tax implications from the sale of a business. Trinity is one of the few companies that will order a pre-exit planning tax analysis to view the impending tax implications. Additionally, we can help negotiate, structure and mitigate potentially devastating tax consequences to help you put more in your pocket, rather than giving it to Uncle Sam.
How to get the most value for your business
As indicated earlier, each seller possesses their own unique set of circumstances, and there are many things to consider. An experienced team of advisors with practical experience can efficiently ease the process towards maximizing outcomes.