Posts Tagged ‘business exit’
5 Key Points To Getting Your Business In A Sellable Position
October 21st, 2009
How Do You Sell Your Business For Higher Profits?
Yes, in most cases, it does takes a bit more than the decision to sell and sticking a for sale sign in the ground to get the most profit or return from selling your business interest when you decide to exit.
Here are a few points to consider that can individually and collectively increase your probability of higher returns and a faster sales process once you put your business interest on the market.
#1. Develop a business exit mindset. As you grow and develop your business, remember to do so keeping the end in mind. Part of being in business is to develop asset value that someone will want to pay you for someday. Too often, when business owners are ready to sell, their business is not in what I would call an optimal sell-able position whereby buyers are not rushing to place high value offers to purchase.
#2. Related to the first point, continually focus on building assets, especially as you get closer to your projected time of exit. If you are in a service business, building a bigger and more responsive customer list will create more value. If you are in a more asset intensive industry, keeping your assets up to date, and investing in a physical location will also create more asset value and buyer interest.
#3. Build proof of performance. The preparation of financial statements and tax strategies can strategically save you money, but can also reduce the historical performance of the business. Sometimes your accountant can be too cleaver where you may save some taxes in the short run, but loose out on your sales price in the long run. Remember that while business valuations are done in a number of ways, the primary method will always be some multiple of generated net cash flow. So the closer you get to business exit, the more cash flow you want to be able to book in the financials, which could end up costing you some taxes short term, but also gaining you even more long term sales proceeds.
#4. Make yourself Dispensable. Too often, business owners do not transition the management and control of the business to others or create systems that do not require their direct involvement. One of the key things that can scare off buyers is the fear that the business may not be able to profitably continue without the presence of the owner.
#5. Develop a financing friendly scenario. In most cases, optimal profits from selling a business and quick business sales, have everything to do with the buyer being able to finance a portion of the business purchase price. Third party business financing is more likely when lenders can clearly see the historical performance of the business, a solid transition plan, and business assets that have significant market value. The other business financing aspect of getting an optimal sale price is for the business owner to supply part of the financing. While this limits the cash proceeds in the short term, it can also make or break the potential for higher total returns.
Vendor financing can also significantly speed up the sales process as third party lenders are more interested in participating in deals where the vendor is also prepared to contribute. Why? There are a couple of reasons. First, the amount of third party financing required will likely be less so less risk to the lender. Second, the vendor financing will create risk for the vendor and should motivate the vendor to support the transition of ownership and disclose all risks and issues that may impact the business in the future. This will also reduce the risk of a third party lender. Third, lenders are not typically interested in financing goodwill, so when goodwill is built into the sale price, vendors are many times expected to finance all or part of the goodwill valuation, creating a more comfortable position for third party lenders to provide business financing
Business FinancingDo You Have A Business Exit Strategy?
October 4th, 2009
Why Is The Business Exit Strategy So Often Overlooked?
If you’re like most business owners, you or may not have thought about your eventual business exit strategy. Lets look at why this is a very common issue with business owners and why it should be given more time and attention. The underlying goals of any for profit business is to generate cash flow, build assets, and create a profitable exit plan from the business some time into the future. While the these goals are clear, the exit related goals do not get a great of attention until the owner is getting near retirement age or after some event causes the owner to need to exit. The result tends to be a suboptimal ending in terms of money actually realized from selling their business interests. Here are the main reasons (from my observations and discussions with business owners) for a lack of business exit planning and the resulting disappointing financial returns. 1. Business owners do not see a connection between what they’re concentrating on in the business today and their eventual exit. This is a highly flawed way of thinking as the present and future are closely linked in a number of ways. The actions of today, will impact the potential of any future exit. If the goal is to build optimal wealth, then all activities need to be ultimately geared towards increasing the value of the business enterprise, which effectively is to increase the value of the business exit. If the present actions are eroding the potential future exit value, then they should be corrected in order to maximize overall wealth of the owners. 2. Business owners assume that the process of exiting from their business will be quite straight forward and easy to navigate when the time comes. Again, in most cases this can be a radically incorrect assumption that can have a disastrous impact on the business owner’s retirement fund. The reality is that business exits can be hard to manage and in many cased they take way longer than expected to complete and the profit realized is far less than expected. 3. Business owners don’t want to deal with the end of their business ownership, so its easier to just ignore the whole ‘process and wait until they’re forced to deal with it. This holds true for many individuals that started a business from scratch and operated it for a considerable length of time. 4. Another misguided point of view many owners have regarding their eventual business exit is that there will actually be a buyer ready to buy at the exact time the owner wants to sell for the price the owner wants to sell for. This type of thinking can lead to very disappointing results. In reality, a business owner should always be ready to exit and always be directing their business to achieve an optimal future exit, regardless of when it actually takes place. If a buyer is looking for your type of business right now and is prepared to pay a premium for a business in an optimized and sale-able position, then a business that is always ready to exit stands to profit handsomely. While this particular circumstance may never occur, it also prepares the business for immediate exit if other circumstances present themselves, either personally or professionally. The most common unplanned circumstance I can think of here is the sudden passing of the owner or a death in the owner’s family where the owner does not want to continue with his or her business commitments on a day to day basis. If the owner is always ready to exit, then this or any other unforeseen circumstance will reduce the potential of a massive discount in sales proceeds caused by a sudden unplanned business exit. If you want to get the most cash out of your business exit, then start building one into your planning, because you never know what the future holds.
Business Financing