Are you planning an exit strategy for your current business? If so, you have your work cut out for you.
Reports show that businesses typically take at least six months to sell after being listed on the market. If you want to speed up your sell time, you're going to need to make your company attractive to buyers.
If you plan on selling a small business in 2021, there are a few things you need to get right for a successful sale. Follow the six tips below to manage your exit strategy for your company.
1. Determine Your Company Valuation
Before you think of selling your company, you need to figure out how much it's worth on the market. The problem is that your company's worth will vary based on the industry you're in.
You might not get as high a valuation for a brick and mortar business. These businesses take more resources to run and have more moving parts. On the other hand, a technology business can be mostly automated and require less hands-on work from the new owner.
In most cases, your company valuation is based primarily on your average monthly net profit. Multiply your net profit by anywhere between 12 and 48 months to figure out high you should price your business.
Of course, this can change if your company has unique assets. If you have any trademarks or patents, that can change your valuation.
If you have trouble figuring out how to price your business, it pays to talk to an expert to figure out your options.
Recommended Read: Five tips for starting a small business in 2021
2. Document Everything
The person purchasing your company is going to be coming in blind. Companies vary in the way they run, so the new owner will need to get up to speed quickly with how everything runs. Without documented procedures, this is going to be difficult.
If you provide potential buyers standard operating procedures for your company during the buying phase, it makes the purchase an easier decision. People don't want to come in and struggle to figure things out. The business can struggle and decline if the new owner wastes too much time trying to get up to speed.
Documented procedures mean that anyone can jump in and get started straight away. Getting up and running in less time means less risk, making your company a more attractive buy.
3. Sort Your Financials
Even if you have a great bookkeeping system, there's still a chance that you're paying for goods and services that your company doesn't need. Each one of those purchases will reduce your net profit. When that happens, you're going to get a reduced price when you sell your company.
You don't only have to worry about wasteful purchases, either. You also run the risk of taking part in risky purchases. Anything that throws a red flag for potential buyers will reduce your sell price and make it harder to get your company sold.
If you handle your finances in-house, it makes sense to have a third-party accounting firm come in to audit your business finances. You and your accountants may have tunnel vision when looking at your spending, which means that you may be missing obvious problems. A second look from an expert can get those issues cleared up.
4. Pre-Qualify Buyers
The sale of a business takes time. There are tons of documents you need to sign and due-diligence to be done by the buyer. In cases with complicated sales, it can take months for your sale to go through.
The last thing you want to do is waste time on a buyer that doesn't have a real interest or the means to buy your company. Check their funding sources to ensure there won't be hiccups once the buyer needs to transfer their funds.
It also pays to know if the new buyer will fit the culture of your business. You also have your employees to think of when making the sale. You don't want them to get stuck with an abusive owner that mistreats them or replaces your whole team.
5. Create a Plan for the Buyer
In most cases, a person buying a business isn't doing it because they want to buy an asset and sit on it. If that's what they are doing, they're better off buying stocks. Someone purchasing a business wants to grow it and make more money.
You're the one who has a history with your business, so you know what needs to happen to grow. Let your potential buyers know what those plans are.
Giving someone a roadmap will help them plan for the future if they decide to take on the task. Your plan will give buyers confidence that they will get a return on their investment when they take over.
6. Think About Using a Broker
You're going to have your hands full when you get your business ready to sell. If you also plan to handle the selling process yourself, you might find yourself overwhelmed by all the work. After all, where do you find buyers suitable for your business?
If you're in this situation, using a broker is a great way to handle the sale. Most brokers have an established network of buyers who are ready to buy companies.
You can also find brokers who specialize in different types of businesses. Take software and technology business brokers, for instance. They'll know where to look for tech enthusiasts who are trying to find potential websites and products to take over.
Selling a Small Business Won't Happen Easily
You won't be able to find a buyer for your small business just around the corner in most cases. You'll need to do the work to make your company look worthwhile if you want to find a buyer. Follow the tips above when selling a small business so you can make the sale happen sooner rather than later.
If you found our tips useful and want to learn more about streamlining your business for the sale, head back to our blog. Our business section has valuable information that will help you run things more smoothly.