The New Year is when we often take the time to plan for the year ahead. If you are thinking of transitioning your business sometime in the next 1-5 years, the New Year is also a great time to start making some changes that could result in your company selling at a higher price. While there are no guarantees, the following three resolutions have shown themselves to have positive results with our past clients:
Put Your Energy Into the Business
Many people as they are considering retirement have a tendency to start a little early and let the business coast. One thing about coasting – it is always downhill. Putting in the effort your company needs to grow should produce higher revenues which in turn can lead to a higher sales price. If you know your purchasing can use a little tweaking to reduce the COGS percentage, do it now. The more profitable your company, the more valuable it will appear to potential acquirers.
There is one caveat: Do not make long-term commitments at this stage. The new owner might have a different vision for the company and needs the freedom to grow the business to fit their goals.
Run Everything Through the Books
Of course we are all IRS Tax Law abiding citizens, but occasionally a cash job might accidentally slip one’s mind when it comes time to complete the company’s tax return. It is vital in the run up to a sale that all revenue is categorized accurately. The improvement in profitability will be reflected in the sales price. SBA lenders and Buyers work exclusively off of tax returns. Any reputable business broker will therefore use only those figures in marketing your business. An added benefit is that this is an easy way to help increase your revenues and lower your COGS percentage.
Train Someone Else to Do at Least Part of Your Job
One of the hardest parts of selling a business is for the owner to truly accept that someone else can run their company. A way to help ease that transition is to start building your staff to take on more responsibility. This is a case of training them well and managing your people. This might seem it contradicts Resolution #1, but it doesn’t. It doesn’t mean spending less time in the business, rather it is putting the owner in a more administrative and less hands-on position.
The businesses that are the most difficult to sell are where the buyers perceive the seller to be “superman” or “superwoman”. Think of it this way: If you do everything from concept design to pricing to supervising employees, are working 80+ hours a week, and personally cultivate all the vendor and client relationships, what buyer could replace you? The new owner will probably not have your exact same skill set. If you can reduce your direct area of responsibility to one or two, the odds of a successful transition increase dramatically.
Adopting some (or all) of these resolutions could potentially increase the value of your business when it is time to sell.
Have a safe, happy, and profitable New Year.
Thursday, December 27, 2007
New Year’s Resolutions for Business Owners
Thursday, December 20, 2007
When is the right time to sell my business?
It is amazing how often we hear this question. What is also amazing is that there is more than one meaning behind it. Owners typically mean one of two things when they ask that question:
What is the best time of year for selling a business?
For a company whose revenues come in pretty consistently throughout the year, timing is not that important. There is the dead zone that seems to occur between Thanksgiving and the New Year, but other than that, timing based on a calendar is immaterial.
If the company is seasonal in nature, however, the timing for coming to market is much more important. Who wants to buy a company that has already realized the majority of its profits for the year, particularly if that event occurs mid-summer? For seasonal companies, it is best to have the transaction completed at least a month before the busy period to allow for a smooth transition to occur before the desired selling frenzy begins. Keep in mind that selling a business does not happen overnight: on average it takes 4-6 months from the time the marketing process begins until a deal closes. That means if the summer or fall is your busy season, it is best to start the process at the beginning of the year.
In terms of my company’s growth, when is the best time to sell?
As you would have a guessed, a company with consistently growing revenues and an expanding bottom line will sell for a higher premium than one in decline. People like to buy companies that are doing well. If a company is doing well, and has a track record of 3-5 years of doing well, it is a great time to sell. Does that mean if a company hasn’t fared as well that it shouldn’t go on the market? Not at all, but the understanding has to be that the amount the owner will receive will be reduced based on the acquirers perceived risk involved in the transaction.
If a company has not had an ideal track record but can show growth over the last year and current financials demonstrate that the trend is continuing, it helps to allay the fears in the minds of potential buyers. Because of this fact we often recommend to sellers to hold on for one more year or so to improve the financial situation of the company. Many times the owners have let the business coast while they were dreaming of retirement. Only by building the steam back up can the full earning potential of the company be realized.
There are times when personal situations mean that waiting is simply not possible. Most businesses can be sold, but keep in mind, distressed businesses produce distressed sales prices. Depending upon the severity of the decline, it might mean a fire sale (selling off all the assets to the highest bidder and closing the doors). Often in those cases, being out from under the company responsibility has its own intrinsic rewards.
If you want to know if now is a good time to sell your business, give us a call. We can give you a free valuation range of your company’s current worth. If that fits in with what you need to move on with your life, it is a great time to sell. If it doesn’t, perhaps we can offer some suggestions on getting that number into your desired range.
What is the best time of year for selling a business?
For a company whose revenues come in pretty consistently throughout the year, timing is not that important. There is the dead zone that seems to occur between Thanksgiving and the New Year, but other than that, timing based on a calendar is immaterial.
If the company is seasonal in nature, however, the timing for coming to market is much more important. Who wants to buy a company that has already realized the majority of its profits for the year, particularly if that event occurs mid-summer? For seasonal companies, it is best to have the transaction completed at least a month before the busy period to allow for a smooth transition to occur before the desired selling frenzy begins. Keep in mind that selling a business does not happen overnight: on average it takes 4-6 months from the time the marketing process begins until a deal closes. That means if the summer or fall is your busy season, it is best to start the process at the beginning of the year.
In terms of my company’s growth, when is the best time to sell?
As you would have a guessed, a company with consistently growing revenues and an expanding bottom line will sell for a higher premium than one in decline. People like to buy companies that are doing well. If a company is doing well, and has a track record of 3-5 years of doing well, it is a great time to sell. Does that mean if a company hasn’t fared as well that it shouldn’t go on the market? Not at all, but the understanding has to be that the amount the owner will receive will be reduced based on the acquirers perceived risk involved in the transaction.
If a company has not had an ideal track record but can show growth over the last year and current financials demonstrate that the trend is continuing, it helps to allay the fears in the minds of potential buyers. Because of this fact we often recommend to sellers to hold on for one more year or so to improve the financial situation of the company. Many times the owners have let the business coast while they were dreaming of retirement. Only by building the steam back up can the full earning potential of the company be realized.
There are times when personal situations mean that waiting is simply not possible. Most businesses can be sold, but keep in mind, distressed businesses produce distressed sales prices. Depending upon the severity of the decline, it might mean a fire sale (selling off all the assets to the highest bidder and closing the doors). Often in those cases, being out from under the company responsibility has its own intrinsic rewards.
If you want to know if now is a good time to sell your business, give us a call. We can give you a free valuation range of your company’s current worth. If that fits in with what you need to move on with your life, it is a great time to sell. If it doesn’t, perhaps we can offer some suggestions on getting that number into your desired range.
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