Selling your business is never an overnight decision. Many factors enter into the decision – career timing, business cycles, family timing and support, and competitive issues are just a few considerations. Even if you have a family business that you plan on passing on to the next generation, running your business for highest value makes sense now and in the future. Here are 7 things you can do to keep your options open for cashing out profitably:
- Watch for trends in profitability growth. When you have two to three years of strong sales and profitability, you make an attractive target for investors looking to buy a business. No matter how well you run your business, all businesses and industries have cycles. If your business and the market are in a strong cycle, you can capture a better price than when things start to decline.
- Run a small business like a larger business. Purchasers will look for profitability and sustainability of the business model when the previous owner departs. For example, running too many personal expenses through the business dents profitability of the business, even though it’s a legitimate use of funds. And a business owner who takes vacations and can count on business carrying on in his or her absence indicates a healthy business environment.
- Diversify your customer base. Additionally, you will want to demonstrate that the business is sustained by more than just owner relationships, and that the revenue stream is generated by a healthy variety of customers. Ideally, no one customer is responsible for more than 5% of the business.
- Pick a team you trust to advise you. Having relationships with an accountant, attorney, business consultant or broker brings well-rounded input on timing, strengths and weaknesses to address.
- Look down the road. What changes do you see happening in your industry? Are there changes in technology that you need to make to remain viable? If yes, is the capital investment possible? If not, you may want to consider selling at a time of strength before the market moves past you.
- Consider your next move. You may want to stay on for a period of three to six months to aid in the transition. Such an offer opens up the field of buyers to those currently outside your industry. But beware that remaining in your company without authority has trade-offs. You also have ways to take money out of the business without leaving completely. Options include selling a portion of the business, creating an Employee Stock Ownership Plan, or doing a leveraged recapitalization, which is a loan that gives you a portion of the proceeds.
- Make a list of deal breakers. Your team of advisors can help you put a list together that will prevent you from making an unwise decision. Deal breakers include selling the company, but remaining responsible for the real estate lease, financial or other obligations to current staff, unresolved issues regarding intellectual property rights, and tax burdens from a sale.
Salmon Sims Thomas specializes in helping business owners maximize the value of their businesses. We are members of the Exit Planning Institute, an organization committed to helping clients exit their companies successfully. Please contact us to talk with a Salmon Sims Thomas advisor about achieving your personal and business goals.