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