Meet with an Intermediary 1-2 Years Prior to Selling
Meeting with a business broker prior to selling can help you get a better price for your business.
It’s a story we hear all too often – a business owner has spent years, even decades, building a successful business and is finally burned out and wants to sell. The business owner comes to Viking for a valuation and finds that the business is worth less than they had anticipated and they will need to spend another year or two in the business, getting it ready to sell. Sadly, some of these business owners end up selling their business for less than they would like simply because they have reached their limit. This is a not a situation you want to find yourself in and there are ways you can prevent it from happening to you.
Owning a business is a tough job. Business owners find themselves in the difficult situation of spending too much time working in the business, and not enough time working on it and planning ahead. If this description sounds like you and you are already thinking about selling your business within the next year or two, it may be time for you to meet with a professional business broker for some guidance. The benefit of meeting with a broker prior to selling is that they are trained to identify potential problem areas in your business that may prevent you from getting the best price possible. Here are the top 5 most common issues we see in businesses that are not properly prepared to sell.
Business owners may run some personal expenses through their business. This might help you reduce your taxes a little bit, but it could cost you a hundred thousand dollars or more when it’s time to sell. A professional intermediary can advise you how to best handle those expenses so that you can get the best price possible. Even if you are not ready to sell for a year or two, planning ahead and handling these expenses differently will dramatically increase the value of your business when you decide to sell your business.
Buyers prefer to buy a business when there’s at least a small management team…an office manager, sales manager, operations manager. When you try to sell your business and the knowledge of managing all of those responsibilities is in your head, it makes it difficult for a new owner to get comfortable in how they’re going to learn and manage all of those different responsibilities day-to-day and still have time left to work on growing the business.
If you are not already assessing your customer sales concentrations, this is a good practice to implement. If you’re seeing that 50% or more of your business is tied up in a few accounts, it’s time to make a serious adjustment. It’s difficult to get bank financing or attract buyers if a lot of your business is dependent on just a few customers. Their concern is what happens to the business if you lose one of those major customers. By meeting with an intermediary a year or two prior to when you think you’ll sell, we can help you identify some things you can do to help minimize the impact this will have on selling your business.
As mentioned before, small business owners often must wear many hats, including the sales hat. A problem we commonly see in small businesses is in its client relationships; these relationships are almost always with the owner of the business and this can be very problematic when the business transitions to a new owner. Buyers worry that the crucial customer relationships may not transfer to them once the owner has exited and if a large portion of revenue comes from these accounts, this could be a deal breaker. Taking the time to establish relationships with other key team members or hiring a salesperson will help a buyer feel more comfortable about transitioning the accounts once the owner has left.
The best time for you to sell your business is when it’s doing well. As tempting as it is to continue running your business while it’s doing well, this is the best time to sell because that’s when you can get the best price, obtain the best financing terms and attract the biggest pool of qualified buyers. By meeting with a professional intermediary 1-2 years prior to selling, we are able to review your past and current financials to map out when the best time to sell your business is based on how well it is doing.
If you have been thinking about selling your business within the next year or so, you will want to consider reaching out to a professional intermediary soon. You never know what unforeseeable event lies ahead that could significantly lower the price of your business or make it very difficult to sell. Think of all of the time that you have invested in your business over the years – don’t you want to get the very best price possible for all of your hard work when it’s time for you to sell? An intermediary can help identify vulnerabilities in your business and advise you on how to improve them. Plan ahead – you will thank yourself on closing day!