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Tag: Business sale

  • 3 Critical Strategies to Help Your Company Sell | Entrepreneur

    3 Critical Strategies to Help Your Company Sell | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    When you’re getting a new business off the ground, selling it is likely the last thing you’re thinking about.

    However, the truth is that it’s much easier (and much less costly) to develop your exit plan from the start than it is to restructure your company to sell. For business owners, the best course of action is to grow a sellable company right from the beginning.

    Not sure how to develop a sellable business? Here are some tips to get you started.

    Related: 3 Reasons You Should Sell Your Business

    How do you improve sellability while building a business?

    Making your business sellable doesn’t only benefit you when it comes time to make a sale. The businesses that command the highest sale prices are also the most profitable, so when you’re building a sellable business, you’re also setting yourself up for success as a business owner.

    One of the keys to building a sellable business is making early investments to improve scalability over time. You can do that by focusing on the following:

    • Implementing high-quality, efficient technology systems
    • Hiring executive leaders
    • Having financials regularly reviewed and audited
    • Building human capital function

    These might sound like obvious investments to make to some. Still, many founders do not want to make the necessary investments in infrastructure to be able to scale the business, instead viewing it as ‘overhead.’

    Investing in infrastructure from the outset may involve a substantial cash outlay, but it will dramatically increase your business’s value when it comes time to sell. Align Business Advisory, a leading M&A advisory for small and mid-size businesses, also points out that a third-party advisor can greatly help businesses to figure out ways to improve their overall scalability with services like business valuation and exit planning.

    If your company has quality infrastructure that can be built upon, potential buyers are looking at a turnkey sale. You’ll be poised to make significantly more from the sale in this situation. If a buyer sees that they will need to restructure the company for scalability after they purchase it, they’ll pay much less.

    Related: Top 5 Mistakes Entrepreneurs Make When Scaling Their Business To 7 Figures

    How do you help your company sell for a higher multiple?

    Even if your company has already been in business for years, there are still several things you can look at to optimize total value. If you want to make sure you’ll make as much as you can from the sale of your company, start with these steps.

    1. Enhance operational efficiency

    Many smaller business owners are owner-operators; their presence is essential for business success. However, when it comes to making a sale, this situation can dramatically decrease what a buyer is willing to pay.

    Why? If the buyer purchases a business like this, they’re taking on considerable risk. Once you leave the business, there’s a possibility that daily operations will suffer or key customers will leave.

    If you can demonstrate that your business functions well without your involvement, buyers will see a purchase as much less risky, so they’ll likely pay more when the time comes to sell.

    Related: Selling Your Business? Do These 6 Things Right Now.

    2. Optimize gross margin and EBITDA

    Not all revenue dollars are created equal. For instance, If a company must spend $99 to make $100, then that $1 of profit is not as valuable. So, regarding profitability, the cash in your business’s bank account isn’t the only thing that matters.

    To ensure your profit margins are high enough to draw in quality buyers, you’ll want to look at your EBITDA (Earnings Before Interest Taxes Depreciation Amortization) margin profile.

    Your EBITDA margin indicates your operating profit as a percentage of your total revenue. In most cases, buyers want an EBITDA margin of at least 10%. Many buyers view businesses with lower margins as too risky.

    3. Diversify your customer base

    Having one or two customers who routinely spend large amounts at your business can give you a sense of security. But buyers want to see diversified revenue. If most of your revenue comes from a few customers and those customers stop patronizing your company, your finances will suffer.

    In most cases, buyers look askance at any business where a single customer accounts for over 20% of the revenue. They may still purchase your business but are likely to pay substantially less.

    If you currently rely primarily on a few customers for steady income, make an effort to diversify income sources. That could mean offering additional products or services or using targeted advertising to draw in different demographics.

    Related: The 11 Rules of Highly Profitable Companies

    Build a sellable company from the ground up

    Creating a business that’s built to sell can be a challenge, especially if you’re wrapped up in running that business from day to day. However, it is vital that entrepreneurs prioritize sellability from the start of their business journey.

    The tips above provide ways to help maximize your business’s total value and attract quality buyers. By proactively working toward sellability, you are not only positioning yourself for a successful sale, but also setting yourself up for long-term business success and profitability.

    Peter Daisyme

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  • Selling Your Business? Do These 6 Things Right Now. | Entrepreneur

    Selling Your Business? Do These 6 Things Right Now. | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    According to data from the Small Business Administration, more than half of the small business owners in the U.S. are over the age of 50. Because of this, many of us are starting to think about the future and possibly one day selling our businesses. This is why research site BizBuySell reported that the business-for-sale marketplace grew almost 5% last year, a gain of 19% since 2020 and the first half of 2023 has already “experienced strong year-over-year gains.”

    There are many reasons I’m expecting to see continued growth in the number of small business owners looking to exit their companies over the next few years. Our population is aging and much of the “boomer” generation is at retirement age. Capital gains and estate tax rates — for now, at least — remain at historic lows. Stock market volatility is driving some people to seek more stable, controllable returns for their money. And a growing number of millennials have now gained enough business experience to want to venture out on their own, and buying an existing business rather than starting from scratch is an attractive option.

    If some or all of these factors are making you think it could be time to sell your business, then know that this won’t occur overnight. You will need to plan and take these six actions before dipping your toes into the market.

    Re-visit your buy-sell agreement

    If you have other equity partners, I’m hoping you have some type of partnership or buy-sell agreement which indicates the process that will need to be followed if one or more partners exit a business — be it voluntary or not. This agreement addresses issues like valuation, insurance, taxes, transfer of shares and death or sickness of a partner. If you and your partner(s) have agreed to sell your business sometime in the future, then it’s critical to update this agreement so that everyone’s on the same page as to how the transaction will go. No buyer wants to walk into a messy divorce.

    Pay for a valuation now

    Humans always think that we’re more important than we really are. And business owners always think that our businesses are worth more than they really are. Before entering into the buy/sell market, it’s important to get a reality check. To do this, I recommend hiring an independent appraiser (ask your accountant or attorney or search online) and letting a professional without an agenda tell you just how much your company may be worth. Your appraiser should have a CBA (Certified Business Appraiser) or ASA (Accredited Senior Appraiser) qualification. Getting an appraisal done earlier will be a reality check and allow you to zero in on the areas of your business that need to be fixed in order to increase your company’s value. That way you can go into the market with a price for which you have confidence.

    Do a document check

    Take the time now to scan every important (and current) document, contract, agreement, tax return (from the past three years, at least) and written record that your company has. This includes any and all paperwork that supports your employee, real estate, insurance, intellectual property, contractor, leases, loans, supplies, sales and government obligations. Organize and save these documents online where they can be shared with permission because you will absolutely be asked to provide them. Don’t make this a last-minute fire drill.

    Bring in a technology expert

    Technology has become a significant factor in the sale of a business. We live in a big data world and buyers are looking to purchase information that they can use. They also want to make sure that a target’s systems are up-to-date and secure so that big investments and changes can be minimized after the sale of a business. To do this, you’ll need to bring in an outside technology firm to evaluate your network, hardware, security, software, and databases and give you an honest report on just how out-of-date you are and what investment is required to bring your system into (at least) the 19th century.

    Visit Home Depot

    When selling your business, you’re going to be visited by many outsiders. Perception is important and if a potential buyer drives a car over potholes in your lot, trips over cracks on your sidewalk and has to wipe away drips from a leaky ceiling that’s going to have an impact on what they think of you as an owner and the valuation that they would apply to your business. Like any homeowner looking to sell their house privately, you’ll need to spruce up your physical location to make it look attractive and up to date.

    Finally, assemble your team

    You are not going to successfully sell your business at the best value possible without a team effort. Now is the time to think about and assemble your advisory team to help you through this transaction. All important, in my opinion, is to have a great financial person — a certified public accountant or similar — to work alongside you as, in the end, this transaction is all about the numbers and you’ll need someone with a financial mind and good communication skills to help you drive it. You’ll also need a good attorney to review and create agreements. There may be other experts on the periphery — like a specialized tax person or an insurance advisor. I also strongly recommend using a business broker and making that broker part of your team as well. Brokers serve a vital function — they are experienced in buying and selling companies and can use that experience to move a transaction forward, despite the inevitable obstacles that will be faced.

    These are the six things you should be doing before you even put your business up for sale. Notice anything? How about this: We should all be doing these things regardless of whether we plan to sell our businesses, right? Our job as business owners is to maximize the value of our companies so that they continue to grow and succeed. That’s what a potential buyer thinks. We should be thinking the same.

    Gene Marks

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