Even if you have absolutely no plans to sell in the near or far future, you should keep your business in sale-ready shape.
For one thing, running a business so attractive and competitive that someone would want to buy it is more rewarding – personally and financially – than running a business that’s in constant disarray. No surprises there.
Beyond that, though, for most business owners the motivation for a business exit is less predictable than we’d all like to think.
Be ready for a profitable exit – just in case
Other than retirement, most business exits are prompted by conditions that arise unexpectedly: Boredom, burnout, need for a geographic relocation, health challenges, divorce, family obligations, lack of energy, need to free up assets, conflict with partners, fierce competition, or financial troubles.
If your business isn’t ready when you want or need out, you have only two choices: Liquidate or sell at a sacrifice price. You can do better. Here’s how.
Get and keep your business in sale-ready shape
Don’t wait until you’re ready to bail to prepare your business for a sale.
Business improvements cost money. If you wait until you until the need for a sale looms, the investment in necessary changes will eat into profits at the very time a buyer is using your bottom line as an indicator of the strength of your business.
By keeping your business in sale-ready condition you maintain it in a state that’s attractive to buyers. Even better, you maintain it in a condition that’s attractive to you. Getting your business into sale-ready shape is a win-win proposition.
For incentive, do some business-valuation math
Directly or indirectly, most small business sales are priced based on what’s called a multiple of earnings. Translated, that means that a prospective buyer learns how much a business makes for its owner each year and offers a purchase price of between 1 and 5 times that amount, depending on how strong and competitive the business appears and how easily it’ll transfer to and thrive under a new owner.
The first step in enhancing the value of your business is to increase its annual earnings, which is the base figure in business pricing.
The second step – and the step that determines whether your business is likely to be worth one, two, three, or more times its earnings – is to increase its overall condition, competitiveness and attractiveness.
Know what a sale-ready business looks like
- A sale-ready business looks like a great deal to buyers. It has:
- Upward-trending sales and profits
- A positive growth forecast
- A strong financial condition presented in professionally prepared statements
- Unique or proprietary products, services, or systems
- A desirable location with great facilities and equipment
- A loyal and well-documented client base that’s not dominated by one or a few customers
- Strong assets and protected intellectual property
- A flawless brand image and reputation – online and offline
- No negative legal or financial issues
- Clear documentation of business records and processes
- Transferable contracts, leases, systems, and processes, indicating that the business is likely to succeed even after the departure of its current leader
How does your business fare? Go through the preceding list and check every item where your business is strong – and make every blank box a target for improvement.
Don’t wait until you want or need to pursue a sale. For help, turn to the first part of my book Selling Your Business For Dummies, which includes a blueprint for “getting ready to get out.”
The least you’ll gain through a business sale-readiness effort is a stronger business that’s more enjoyable to own and run. The most you’ll gain is a final payoff in the form of a someday-sale.
Are you ready? Please post your thoughts, success stories, and questions.
About the author: Barbara Findlay Schenck helps entrepreneurs plan, brand, market, and sell their businesses. She’s the author of Selling Your Business for Dummies and Small Business Marketing for Dummies, co-author of Branding for Dummies and Business Plans Kit for and marketing columnist for MSN’s businessonmain.com. Follow her on Twitter at @Bizstrong.
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