Why do entrepreneurs sell their small businesses? Well, for some, the burden of running a company becomes too much and they simply start feeling unprepared. They crave more time on their hands and so the only thing to do is let the business go.
Others start companies with the aim of selling them at a profit so they can go back to the drawing board and start a new challenge – which they will later sell handsomely. For this category, the business has to be sound from the beginning as they have a certain target to hit before they can sell their venture at a price that they foresee.
There is yet another group of entrepreneurs. Those that started a company from scratch with the intention to grow it into a huge venture. Competition and technology advancement hinders them from living this dream and they find that to expand or compete fairly, they will need huge cash injections that they lack. What to do that get a venture capitalist or sell their business altogether?
When selling a business for whatever reason, a few things will need to fall in place. We explore three of the most important.
- Time the Sale
Before selling, ask yourself whether it is the best time to do this. If you are in an industry that is projected to keep growing into the foreseeable future, then you may have a really good shot at selling your business at a good price. Still, wait, as much as you can, until the business has posted a good number of positive financial results before putting it up for sale. A business that has only been around for one year may not command a price as good as one that has been around for six years and continuously returning handsomely – unless of course it is in an industry that is unexplored and with great prospects for the future.
- Value your Business
The same way a car insurance lawyer may be handy when deciding the value of a car, a professional valuer will be required to let you know the value of your business before sale. They will check its competitive ability, measure its performance against businesses existing in the industry and then take into account assets and liabilities as well as the sales trend to give you a proper value of your business. Most companies, depending on variables such as the location of the business, industry trends, and competitiveness, are worth three to six times their annual cash flow.
- Cleaning Up
You want to ensure your financial records are clean from the get-go but if that is not the case, you will need to clean them up as soon as you decide to sell the company. Tax reports, filings, books of accounts and other asset schedules are only some of the things that prospective buyers will be looking for and so they should be perfectly presented.
Sales are not always one-off. Some agreements may stipulate that the buyer pays a certain percentage at the beginning then the rest paid with interest over a period of time.