ReportWire

Tag: Selling a Business

  • Entrepreneur | 5 Steps to Prepare Yourself for Selling Your Online Business

    Entrepreneur | 5 Steps to Prepare Yourself for Selling Your Online Business

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    Ever wondered how you would go about selling your online business? With endless information on how to start and grow your online business, when it comes time to sell your online business, it’s normal to feel a little stumped. The reality is, the majority of business owners don’t start their new venture with the intention to sell, and if they do decide to exit their business, it’s usually a confidential process.

    So, what steps should you be taking to become more familiar with the process of selling your online business? Read on for five important steps you need to learn today, regardless of whether you’re ready to exit your business or not.

    1. Valuation

    Step 1 is the valuation. A good place to start is by looking at your online business’s last 12 months’ net profit and then multiply this, depending on individual circumstances, from 1 through 5. Based on this model, most businesses realistically sell at a multiply of 2-3.

    For example, if your online business made a net profit of $100,000 in the past 12 months, and you were looking to sell your business for a fair price (based on the net profit it is currently generating today), then you’d be looking to multiply by three, resulting in a valuation of $300,000.

    Of course, you would then need to consider any additional value factors such as stock on hand, operational equipment, email lists, social followings and customer reviews.

    Typically, the higher the valuation, the longer it will take to sell your online business, so you need to be mindful of this. If you are looking for a quicker exit of one to six months, you may need to consider valuing your business off a 1-2 multiply to ensure a faster sale. If you’re happy to realistically keep running the business for the next 12+ months, you could opt for a higher 3-5 multiply.

    Once you have a general idea of what your business could be worth and how much you would be willing to sell for, it’s time to move to the next step.

    Related: 3 Signs It’s a Smart Time to Sell Your Online Business

    2. Where to list

    Deciding where to list your online business will directly impact your final walk-away price, so it’s essential to have a solid understanding of your listing options. The two most popular options are:

    • Broker sale: Brokers will offer support in helping you value your business and set the sale price. They will handle the entire sale process and vet potential buyers on your behalf. This is ideal if you are time-poor or you need the extra sales support. The downside to this option is brokers often require a substantial up-front fee (which doesn’t guarantee a sale) plus a high success fee, normally around 20% of the sale price. For smaller businesses with valuations less than $500,000, this could significantly impact the profit you make from the sale. However, for online businesses valued at $500,000+, enlisting the help of a professional broker may be necessary to reach higher net worth buyers.

    • Flipping websites: Flipping websites are online marketplaces for buying and selling businesses. They work similarly to a brokerage in the sense that there’s a listing fee and a success fee, but the fees are often significantly less (with listing fees starting as low as $49 USD). You can also choose the level of assistance you require, making the whole process tailored to your specific needs.

      • With free valuation tools and built-in tech to sync data directly from your online store, accounting software, etc — the whole process is extremely user-friendly. Most platforms also provide same-day support, ensuring a smooth and safe transaction for both buyer and seller.

      • Reputable flipping websites include Flippa and Empire Flippers, so if you are eager to begin planning your exit, research these popular marketplaces and compare them against any brokerage firms you may be considering to ensure you list in the right place for your business.

    3. CC someone you can trust

    Selling your online business requires a lot of time and energy. For this reason, it’s always a good idea to keep another person in the loop that isn’t as heavily invested in the sale. This will help to provide an outside perspective on any tough decisions during the sales process.

    There may be a lot of back and forth with your broker or potential buyers, so having someone close to you who knows your business well, is level-headed and has your best interest at heart CC’d into all communications will be a game changer. Let them know you value their opinion, and if they have strengths you know will aid the sale, don’t be afraid to let them step in if required.

    Related: 5 Tips to Successfully Sell Your Company

    4. Consistency is key

    The majority of businesses realistically take 6-12+ months to sell, so it’s crucial to maintain “business as usual.” Letting your finances, operations or marketing efforts slip because your mind is already starting to think of what’s next is a quick way to hinder the sale.

    Having standard operating procedures (SOPs) in place across all areas of your business will help clearly outline your current systems and processes to serious buyers in the final stages of negotiation. An organized backend can add thousands of dollars to your final sale price, so it’s definitely worth the extra effort to prepare SOPs well in advance.

    5. Post-sale support

    Last but not least, it’s important to mentally prepare yourself for post-sale support. Unlike selling a car or house, most new business owners will expect you to provide a period of support post-sale. So, once you’ve finally found your buyer, don’t expect to be jumping on that plane just yet!

    Post-sale support can be negotiated as a short-term contract (usually 3-12 months) where you’re paid a handover salary, separate from the sale price, to stay on and support the new owner with all tasks until they find their bearings.

    Alternatively, the buyer could ask to withhold a portion of the sale amount in Escrow to ensure you continue to assist them throughout the agreed-upon support period. Although post-sale support is not legally required, offering some form of post-sale support as part of your listing will significantly boost your chances of a successful sale.

    While selling your online business can feel overwhelming, following the steps above will ensure a smoother sale and help you achieve the best price possible. Staying up to date with the latest trends and strategies as well as podcasts like Female Startup Club will guide you to understand the current marketplace and gain the insights you need to make that perfect exit.

    Related: How to Sell Your Business for 10x or More

    [ad_2]

    Doone Roisin

    Source link

  • When Should Business Owners Start Developing an Exit Plan?

    When Should Business Owners Start Developing an Exit Plan?

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    Any transformative business decision requires good strategy and planning. Your business exit is one such decision that will inevitably transform the business. Think of it this way: If you only started planning for a significant initiative a few days before you needed to roll it out, you would be making a huge strategic blunder. Why would a business exit be any different?

    The truth is, business exit planning is good business. Many business owners might believe they don’t need to worry about having an exit strategy until the time for them to exit comes around. In this article, we’ll explain why that’s a bad idea and why exit planning is something that shouldn’t wait.

    Related: Start Your Planning Your Exit Strategy Now With These 4 Tips

    Focusing strategy on the present and immediate future

    Executives and business owners may not plan ahead for a business exit strategy because they are too focused on the present and immediate future of their organization. You yourself probably feel it is more important to focus your efforts on strategies that will ensure growth, profitability and stability in the near term. Additionally, executives often lack clarity about how much value their company might have at some point in the distant future when an actual exit might take place. This uncertainty can make planning for an eventual exit seem like a waste of time or resources compared to tackling other pressing needs within the organization.

    You would be right in rationing your focus and strategizing based on urgency and priority. Business exit planning does not supersede current and short-term business goals as you can clearly see in valuable metrics such as KPIs or OKRs.

    HOWEVER, planning your exit is a good business strategy whether you intend to sell your business or not. Focusing on more immediate concerns and plotting a well-executed business exit are not mutually exclusive. When you properly plan a business exit, you are setting up your company to maximize growth and profits by creating an organization that can run independently of you with top talent, a solid foundation, financial stability and a competitive advantage that outlasts your stay.

    You should certainly look at the macro picture ASAP — ideally, exit planning should begin during the startup or early growth stages of a business so that all future decisions are made with the long-term in mind and so that founders have an understanding of how they want to exit their business before they become heavily invested and committed.

    Related: The How-To: Building An Exit Strategy For Your Business (Even Before You Start)

    Sound business exit planning

    Business exit planning should be incorporated into the overall business strategy. It can start with setting objectives and clear exit goals, such as when to sell or transfer ownership of the business and at what price.

    Naturally, estimating the exit goals and acceptable terms and prices ahead of time can be challenging, as it requires careful consideration. This is, in fact, one of the reasons executives avoid planning business exits ahead of time. First, you will need to research current market trends in order to estimate what price the business may fetch if sold — today or three, five, even ten years from now — whenever you foresee the exit to be most viable based on your strategy. This involves looking at comparable businesses that have been recently sold or put on the market in order to get an idea of potential interest levels from buyers. You can perform some forecasting yourself and use relevant market prediction data from research.

    Second, you should evaluate your own personal financial situation when setting exit goals so they are realistic, especially regarding what type of return you expect from selling your business at a given point in time. Take into account factors such as:

    • cash flow needs both now and in retirement

    • any potential tax implications related to the sale (i.e., capital gains taxes)

    • whether or not there are other shareholders who need to be taken into consideration when determining an appropriate price

    • existing debts that must be paid off before ownership can be transferred

    Additionally, it may also be beneficial to look at trends in investment returns from similar businesses over time — both past performance as well as forecasts for future performance — to ensure you have realistic expectations about likely ROI.

    The overall plan should also involve regular updates in order to stay on track and make course corrections if needed so it does not interfere with other initiatives or ongoing priorities in your organization. Additionally, by creating a succession strategy for key people in the company during this process, you can ensure continuity of operations even after you leave your position.

    A word of caution, however: Do not run your business with the sole focus of securing an exit strategy. That’s the opposite of never planning ahead.

    Related: Planning Your Exit Strategy? Follow These Tips

    Why plan so far ahead anyway?

    First, it allows you to prepare for any potential issues that may arise and create a contingency plan to address those issues. It also gives the company an opportunity to review current strategies and make adjustments if needed, ensuring they are in line with the ultimate goal of exiting at an optimal time. Furthermore, planning ahead can help protect against any unforeseen circumstances that could cause significant financial losses or damage to the company’s reputation. It also creates opportunities for reinvestment or diversification into other markets or industries upon exiting existing ones.

    Lastly, having an exit plan can provide peace of mind, which is essential when making decisions about long-term investments and goals within a business strategy. Better yet, it’s peace of mind not only for you as the business owner or a key decision-maker, but for the entirety of the organization.

    According to some surveys, nearly half or 48% of business owners do not have an exit strategy, and 58% do not even know how much their business is worth as they have never had it appraised. Apparently, there are a lot of decision-makers who are irresponsibly indecisive and alarmingly uninformed to address one of the biggest decisions they and their organizations will inevitably have to face. Are you going to be one of them?

    You need your leadership team to be capable enough to successfully plot crucial strategies such as business exit plans. They need the foresight to understand the importance of looking so far ahead and the capability to plan for an exit while not hindering ongoing initiatives in your organization.

    [ad_2]

    Nick Mascari

    Source link

  • 6 Critical Questions to Answer When Drafting Your Buy-Sell Agreement

    6 Critical Questions to Answer When Drafting Your Buy-Sell Agreement

    [ad_1]

    Opinions expressed by Entrepreneur contributors are their own.

    So, you’ve done it. Your lifelong dream of being a business owner is now a reality. You’re running a successful company. But have you considered what happens when you’re ready to retire? Or even worse, what happens if there is a premature death or disability of an owner? While it may seem like a far-off reality, legacy planning for the business you’ve worked hard to build is an essential ingredient in running a successful business for the long haul. And that’s where a buy-sell agreement comes in.

    A buy-sell agreement is, in its barest definition, a contract between business owners to provide for ownership succession. It is a foundational tool that helps ensure the business can keep thriving as the organization and its owners grow and change.

    Below are some of the key questions to consider when creating your buy-sell agreement.

    Related: What Is a Buy-Sell Agreement and Why Is It Vital for a Successful Partnership?

    1. How will you fund owner exits?

    Often, we see that the exiting of an owner can cause the organization to produce a large amount of capital for the owner’s buyout, which has the potential to create financial stress on the company. This can often be mitigated through stipulations in the buy-sell agreement.

    There are several ways to fund owner exits, including lump-sum payments, installment payments and gradual stock transfers. Transfer of this risk to an insurance company can also mitigate the capital needed from the business or other owners. Working with a wealth advisor and an attorney can be useful to figure out a good financing option for your organization.

    2. How should you structure any insurance policies held to fund a buy-sell agreement?

    While this may seem unlikely, protecting your business in the event of an owner’s death or disability is important. The two most common forms of funded buy-sell agreements are cross-purchase and entity purchase arrangements.

    Usually implemented in businesses with fewer owners, in a cross-purchase arrangement, each owner purchases an insurance policy on the other. This allows the surviving owner to fund a buyout using the insurance proceeds and increases the tax basis of the survivor. This can also help reduce any subsequent taxes due on a future sale of the business. In an entity purchase arrangement, the business owns the insurance policies on all owners and uses the proceeds to repurchase the shares, which are then retired.

    Related: Estate Planning for an Owner-Dependent Business

    3. How do you replace owners that have exited?

    Typically, when owners start exiting, the business is still going. Therefore, it’s important that the buy-sell agreement lays out the terms of owner transition.

    For example, who is replacing this owner? What guardrails are in place for the person replacing this exiting owner? How will knowledge transfer work? All of these items should be outlined in your buy-sell agreement to help ensure the business is not negatively impacted by an owner’s exit.

    4. How do you prepare for the unthinkable?

    Despite the efforts many business owners put into planning for the inevitable, you can’t predict the future. The unprecedented Covid-19 pandemic resulted in significant business slowdowns and caused many business owners to revisit their buy-sell agreements. Some took advantage of the temporarily decreased value of their businesses and moved them into trusts at a significantly lower valuation. Others temporarily adjusted valuation calculations and owner stipulations to keep the business safe while it “weathered the storm.”

    Let’s say an employee wanted to buy into their business during the pandemic. Based on the existing valuation formula, the transaction would have occurred at a significantly undervalued price for the owner. A review of the business owner’s buy-sell provision in the operating agreement resulted in adding a section to allow for the normalization of earnings in times of temporary stress. We are seeing more and more agreements include these types of “failsafe” clauses to protect a business during unforeseen, usually temporary events.

    5. How will you valuate your business?

    Your buy-sell agreement should outline how you value the business. There are a few ways one can value their business for legacy ownership or sale. Earnings Before Interest, Taxes, Depreciation and Amortization (EBIDTA) multiples are one way but are not the only way.

    From book value to enterprise value, it’s vital to use the right formula for your industry and organization. It is also fairly common to include a failsafe provision that allows an independent valuation expert to appraise the business. And even more importantly, as the company grows, it’s essential to reassess your valuation formula. Of course, it’s not wise to constantly change your valuation formula. However, if your company grows from 20 employees to 200, it may be time to revisit your valuation method.

    Related: Exit Planning for Modern Leaders: How to Determine Your Company’s Worth

    6. How will you create a business prepared for your exit?

    Once you’re ready to retire and fully enjoy the fruits of your labor, it’s important that the transition set you — and the organization you’ve worked hard to build up for success. Will you remain on the board? Will you be passing the organization to family or key employees? Will you be selling the business? These are key questions to consider as you build the legacy terms in your buy-sell agreement.

    Whether you’re a business owner who hopes to sell soon or one who wants to build the company for many more years, an effective succession begins before the exit happens. Developing a high-quality buy-sell agreement is an important part of legacy planning. Answering these questions can help protect the integrity of the business you’ve worked hard to establish.

    [ad_2]

    Matt Barber

    Source link