Perhaps you’re beginning to imagine retirement, or just ready to move on to other ventures. Whatever your reasons for selling your business, it can be a daunting task if you’re unprepared. The first step in selling your business should be cleaning house. Ensure that everything is up to date and operating efficiently, from IT managed services to office equipment. The more organized your business is before you try to sell it, the easier it will be to attract a buyer. Click To Tweet
Your Business Transition Plan: Valuation
Selling a business can be an emotionally and financially difficult process, which includes everything from preparation to valuation and finally, closing the deal. One of the most important ways to prepare to sell your business is to get a business valuation to make sure you’re making informed, smart decisions. Generally speaking, a business’s valuation is a combination of the company’s ability to produce future cash flow and the market value of the industry or product.
Choose Your Successor
In anticipation of selling your business, some people will hire their eventual successor as an employee or associate for a few years, in order to smooth the transition. Some sellers may also choose to stay on as employees for at least a few months after a sale. This ensures that the successor understands the processes, is familiar with the staff and customers, and competent enough to take the reins. Even if your successor is a trusted family member, this training period is crucial to successfully transition the business.
If you’re close to retirement, the temptation to slow your pace or cut back on hours can be great. However, if you haven’t chosen a successor, this can be very detrimental to your selling price. Buyers want future revenue, but they pay for past. A business that has been declining in numbers won’t get top dollar or appeal to buyers Succession planning should be done years in advance of retirement. If you wait too long there’s always the risk that declining health or advanced age will make it impossible for you to make hard decisions. If you’re unable to speak for yourself or your business, it creates an emotionally fraught environment that’s hardly conducive to good decision making.
Get Your Books In Order
If you hope to sell the business to the highest bidder, you need a business worth bidding on! The more debt you can pay off, the better. Showing debt on your books may turn off prospective buyers from even considering the business.Your books should show consistent profits over time, with as much detail as possible on the last 3-5 years. You should consider locking in contracts with clients, to show prospective buyers several sources of recurring revenue. You may also want to lock in top-performing employees through contracts, stock programs or other incentives that give them an interest in staying under new ownership.
Business Continuity Plan
Once you’ve established a business succession plan, it’s time to focus on business continuity, to avoid disruption. This will cover all the IT aspects of your business, from data backups to financial records. A continuity plan ensures that the business processes will be able to go on normally under new ownership.
A Team Behind You
A formal business transition plan puts in place the goals, priorities and strategies necessary for a successful transition. Without a clearly defined plan, you’re leaving your personal and financial future to chance. Using a transition team will cut down on the enormous amount of time you would otherwise spend planning, marketing, negotiating and working to find a potential buyer. You still have a business to run, so lean on your team to help.
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