Get Prepared

Selling a Business – Be Prepared

Selling a Business is more likely to achieve the best results if the sale is part of a well thought out exit strategy.

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If circumstances dictate that you need to sell a business and you haven’t properly prepared the business for a sale you will put yourself at a disadvantage in the market. In order to minimize that disadvantage you should make sure you work with a business broker or M&A intermediary with extensive experience and solid references.

Why should a business owner take the time and spend the money to do an exit strategy if the owner has no intention of selling the business any time soon?

In our experience in the sale of over 250 businesses in Virginia, the vast majority of those sales were triggered by unexpected events in the lives of the business owners. That’s why an exit strategy is so important. A business owner should be in a strong position for a sale even if the unexpected happens. A good exit strategy is like an insurance policy. Business owners buy insurance every year hoping they don’t need it…but when they do need it they are very happy they have it. Often business owners buy insurance coverage for events that might cost them as little as $1,000 but having to sell a business without having a good exit strategy could easily cost that same business owner thousands or millions of dollars. Without an exit plan, the owner is potentially “uninsured” for the loss of business value.

What should a business owner do to make sure they are ready for an unexpected sale of their business?

Here’s a start (a specific business might require more preparation so feel free to contact us and we can talk about your specific situation):

  • Financial Statements – make sure your financial statements (for at least 3 years) are accurate, accounting practices are consistently applied year-to-year and all of the assets and liabilities on the balance sheet are the business’ and there are no business assets or liabilities that are the businesses that aren’t on the balance sheet.
  • Get rid of no longer used equipment
  • Clean out dead inventory
  • Make sure your employee practices are documented and applied properly. Is overtime being paid properly? Are your 1099 independent contractors classified properly? Have your employees been screen appropriately for their jobs (i.e., if your employee is working at a day care have you done background and drug test?)
  • Make sure your expenses are all legitimate business expense
  • Clean up any old partnership or ownership issues
  • Make sure your tax payments are all up-to-date. Sales tax, fica, etc.
  • Have a business valuation or business appraisal done on the business so you can determine if the value of the business is adequate to provide the cash needed to secure your future
  • Look at your corporate structure and determine what tax issues will need to be resolved to maximize the after tax proceeds to the seller.

The above items are just a few of the things a business owner should be doing in order to get the full business value in the event of a sale. If you need assistance “getting started”, we can help.

Why do these things increase the value of the business? Because they reduce the risk to a buyer of a business….lower risk for buyer, higher price for seller.