Ready To Sell Your Business?
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SELLERS EXIT PLANNING – MAXIMIZE THE VALUE OF YOUR BUSINESS
Financial buyers (and their banking counterparts) are increasingly cautious about weaknesses in your business and you should create a plan to improve what you can and be ready to explain what you cannot improve.
- Customer Concentration – avoid a situation where more than 20% of your revenue comes from one or two customers. Diversify your base of customers.
- Customer Churn – High growth is attractive, but not if it comes with a really high churn rate. If your customer life cycles are short, you need to review your sales processes
- how you are generating leads
- how you are converting leads to orders
- how well are you delivering on your promises of product or service.
- Legal Risks – Existing or potential law suits and marginal/challenged ownership of your intellectual property will need to be disclosed early in the process. Unchecked, these issues could cause higher escrow values and extend the length of due diligence until the buyer is satisfied with the work out of these issues.
- Key Employee Risk – avoid too much dependence on any one person, especially owner of the business. If the owner “is the business”, now might be a good time to create that management team so that the buyer can see the business operating on day-one of his/her ownership while the buyer figures out his/her role in the business.
Be Prepared To Sell Your Business
Delays in Maintaining Deal Momentum Can Kill the Deal Altogether
- The buyer might change their focus or strategy or get cold feet
- You could lose a key customer or an important employee
- You could miss your numbers in a key month that banks will interpret as the business is falling off a cliff
- The economy could show indications of a slow down.
- Get your financials reviewed (or bettered compiled) by your CPA
- Identify personal financial benefits for the past two years and discontinue running those perks through the company. Yes, you will pay more taxes, but the true profitability of the business will be clearly shown with no explanations needed
- Gather your legal documents and corporate records
- Assemble your key historical metrics (success of converting quotes to orders, sales pipeline, marketing effectiveness, production schedules, vendor lead-times) and market data (potential market, competition)
- Document your operations – this will let the buyers understand how the company operates and it will help you train your new employees as well
- Have a written plan for growing your business – this is the first question from all buyers once they understand your business
Lastly, know how you want to transition out of the business before you meet any buyers. Buyers (and banks) will want to know how you are able to support the new owner as you phase out of the picture. If there is a seller’s note as part of the purchase price, you might want to consider a longer transition period so that you have your pulse on the how the new owner is operating the business. Getting all the payments on the seller’s note is your objective post closing.
Summary:The real important thing to keep in mind is that buyers are buying your future, not your past. By developing and implementing strategic and tactical growth plans, even while marketing your business, you can potentially positively impact your value. And the really great thing is that these are usually not extremely difficult risks to address.
Based on decades of dealing with professional buyers, the items that can often negatively impact deals closing with a premium valuation fall into five common strategic areas that you can focus on:
- Excessive customer concentration
- Excessive supplier concentration
- Excessive dependence on you, the owner who may be exiting
- Lack of a middle-management team
- Inadequate financials
Now this list may look daunting, but if you take each one individually, and work on the ones that are affecting your specific business, you will make great strides in building a buyer ready business.
American Business Investors, Inc. (ABI) will work with you to better understand if you are ready to sell your business. Please give us a call to discuss this very important factor.
Once you are ready to engage ABI to market your business, ABI will create a Confidential Business Review (CBR) that compiles all the facts about your business that you have provided. Once qualified buyers have had the opportunity to read the CBR, they will know if this the type of business they would like to own and operate, and they will be prepared to meet with you for a very productive first meeting.