Often times, our team of Business Brokers at NJ Broker Plus connect with motivated entrepeneurs still on their journey, years away from even considering the sale of their business. The sale of one’s business has to unequivocally be the correct decision for the owner. It is a significant decision and inflection point that should be thoroughly contemplated prior to making the decision.
With that said, failing to plan is planning to fail. There are a number of factors that business owners should consider when coming within a few years of their intended exit timeline.
Based on our experience in speaking with thousands of business owners over the course of our firm’s history, the items outlined below are what we find to be best practices to properly prepare for a successful transaction:
- Financial Preparation of your business. Often times, we see many business owners who work alongside their accountant to minimize taxes, through personal/discretionary expenses charged through the business. There may also be unreported cash income, not documented on the books. While this is certainly a ‘perk’ of being a business owner, this could become a headache when it comes time to sell your business. Many lenders do accept certain “addbacks” such as car or phone payments, however, these must be clearly documented. Additional cash income may save you on taxes at the time, but could dramatically reduce the value of your business when looking to sell. We also recommend documenting any one-time, non-recurring capital expenditures (such as implementing a new ERP system), as these types of expenses can be considered add backs. Cleaning up the books is critical to preparing for a sale.
- Align with your full advisory team prior to listing your business for sale. CPAs, which play a key role in the financial prepration of your business mentioned above, may not be the only advisor in your circle. Many business owners also have financial planners, strategic consultants or attorneys that they confer with on matters related to the business. Having a full picture of what a sale may entail from a tax and legal perspective is critical. If retirement or liquidity events are motivations for your sale, just remember, gross proceeds and after-tax proceeds are two different figures!
- Integration of skilled employees into customer-facing roles. Are you currently the face of the business? This creates a transition risk that scares off many buyers. There is a human element to relationships with customers, this is not something that is transferrable such as contracts. Taking a step back and having employees interact with customers as opposed to being the sole face of the company is highly recommended.
- Document Standard Operating Procedures (SOP’s). You may have run a highly successful enterprise for decades, with all of the operational processes and systems defined in your head. This creates a huge challenge when selling your business, as the new owner must go through a transition period to learn the business. Having all procedures and policies documented in advance is highly recommended.
- Identify an employee you can upskill to become General Manager of the business. Many business owners run their operation without reliance on a GM. Having a skilled employee who can help you run the business enhances the value when going to sell. Businesses that rely on the owner working many hours in a week are not attractive to buyers and warrant lower sale multiples. Delegation can be challenging, however the long term benefits are immense.
- Perform an objective review of your business, identifying any risks. Customer concentration, limited suppliers, and near-term expiration of leases are examples of major risks to the sale of your business. While you may be looking to exit, finding ways to mitigate these risks in advance of a potential sale will go a long way. What actions would you take if you were holding on to the business for the next 10 years?
Your business is your most important asset. Beyond the financials, there is an emotional attachment. We get it. NJ Broker Plus treats all clients with this in mind and we are here to help.
Contact NJ Broker Plus to learn more about our services!
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