I often talk to business owners who are hoping to sell their business someday, but are not taking any steps toward creating a business that can be easily sold. If you want to sell your business it is wise to start preparing years in advance. Here are a few key tips to help you prepare to sell your business.
- Make sure the business can run without you
- Get a business valuation
- Hire a CPA
- Check industry benchmarks
Now let me dig into more detail with some great resources for each of these tips below:
- Can your business run without you? – It will be incredibly difficult to sell your business if the business relies completely on you personally. You need to start getting yourself out of the day to day operations so that you can demonstrate that if someone else bought the business, it could still run profitably without you.
- Know what your business is worth – I have talked with a lot of business owners that really don’t understand what drives their business value up or down. A lot of times people think it is simply the value of the assets, or maybe it is based on sales. Every business is different, and a lot of factors go into placing a value on your business. If you want to sell someday I suggest that you start using a tool like BizEquity or Equidam to get regular business valuations done.
- Get your financial statements in order – you really need to focus on accurate accounting years before you look to sell your business. When a potential buyer is looking to purchase your business they are going to ask for at least the last 3 years of financial statements and they are going to want to know details so that they can understand how they might be able to improve the business or benefit from synergies with another business that they already own.
- How do you compare to others in your industry? – Finally, you should know how your operation performs compared to industry benchmarks. I really like BizStats which will provide industry benchmarks for free for 1oos of industries. For example here is an example income statement benchmark for a Real Estate Agency. This shows that a sole proprietorship real estate agency could potentially see a 52% net profit on sales. If you are only reaching 12%, maybe you need to take a deeper look at what is and is not working with your business.
These are 4 important steps you should take if you want to prepare to sell your business. Good luck!