At some point, a business owner may consider selling their business. Some people want to sell because their business is not doing as well as expected, and they want to move on to a different project. Other people may be looking to sell because business is booming, and selling a profitable business can mean a considerable selling price and lots of profit for the seller. No matter the reason for selling a business, here is what a business owner needs to know when selling their business.
Know the Value of the Business
Before a person sells anything, from old dishes to a designer purse, they need to know the value of what they have. So, if you are going to sell your business, look into the third-party valuation. What is a third-party valuation?
A valuation is when a third party does billing due diligence and goes over receivables, assets, and inventories. The third party will also examine outstanding debts and liens. A business valuation is how a person truly understands the company’s bottom line and how the value of the business is calculated. A valuation can help the buyer price the business properly and make sure they sell the business at an appropriate price.
Buyers Look for Financial Red Flags
When someone considers purchasing a business, they want to know that it is free of financial red flags. So, what is a red flag that buyers look for? Personal vehicles and boats on the business books and poor financial bookkeeping are just a couple of issues buyers don”t want to see.
Buyers will want to see financial statements and records for at least the last three years. These records should be simple and easy to understand. There needs to be a paper trail for all money coming in and going out.
Buyers Want a Thriving Business
While a few buyers may buy up sinking businesses to turn things around and make a huge profit, most people want an established company that is doing well. It can be risky for the buyer to purchase a sinking ship, so make sure the business is doing well before putting it on the market. If the company has seen better days in terms of profit, it may be wise to hold onto the business for a bit and maximize efforts to increase sales and profits.
Many people start working on getting sales and profits up years in advance of selling their business. To get a higher sale price, ensure the company has a diverse customer base instead of one primary customer. Work on marketing and promotion to bring in new customers and explore ways to keep current clientele as well. Ensure everything in the business is in proper working order, make sure operating systems are up to date, and work to get rid of bloated inventories.
Smart Sellers Utilize Broker Services
It can be challenging for a business owner to get their business in front of prospective buyers. Many sellers choose to use the services of a broker to make the process easier. The broker will advertise for the seller, answer questions for prospective buyers, and guide both the buyer and seller through the change of ownership. Using a broker takes the guesswork out of selling a business, and the broker does a lot of the work.