Brady Slack is the managing partner of High Country Finance.
Business owners who want to sell their companies should make sure they’re financially prepared to do so.
The quality of a business owner’s financial records can increase or decrease the time it takes to sell their company—and the amount of money they can get for the sale. Case in point: When I sold my business recently, we got a substantial amount more than what we had listed it for because we were able to give the buyer clean financial information. By contrast, I’m currently under contract to purchase another business and have to spend additional time combing through their financial information because the seller hasn’t kept good records.
If you’re a business owner who wants to sell your business, there are key financial steps you should take to prepare.
1. Get Your Financial Records In Order
First, it’s vital that you get your financial records in order. Nothing can hold up a sale faster than not being prepared.
All of your business’s financial records should be organized and easy to find, with backup copies available. They should also be clean and accurate. In general, the more clean and accurate your business’s financial records are, the fewer questions a buyer will have during the review process. If a buyer can’t determine whether your financials are correct, they won’t be able to quickly determine if they want to pay you what you’re asking. Additionally, I’ve observed that buyers will be rightfully hesitant to complete a purchase if they don’t know where a business financially stands—moving forward would be a liability for them.
Additionally, you should be able to provide clear projections (in terms of profitability and value opportunities) for the next 12 to 24 months. This step is especially important for businesses that don’t have recurring revenues. If a buyer is considering purchasing such a business, these projections will help them determine how they’ll be able to make money off of the transaction—and give them a window into the future ROI the business could yield.
Financial preparation can also allow you to take a step back and honestly assess if selling your business at a given time is the right call. I’ve seen some business owners get fixated on the idea of selling their business when, in reality, making one or two adjustments to their companies could help them remain profitable without being as involved.
Additionally, even if you don’t want to sell your business right now, strive to become financially prepared as soon as possible. Make financial preparation a habit. Financial preparation is the backbone of making smart financial decisions and knowing where your business is headed.
2. Consult With The Right Professionals
As you get your financial records in order and begin the selling process, you should consult with the right professionals, which could include a business broker, tax advisor, financial advisor, accountant and business attorney.
By meeting with the right professionals, you can get expert insights into whether or not you’re pricing your company correctly and, in turn, avoid making a listing that is too high or too low. Additionally, experts can help you review your financial records with a fine-tooth comb, making sure there are no mistakes or oversights that could cause a buyer to come back later and say details were misrepresented. With expert help, you can minimize risks and maximize your chance of a successful outcome.
3. Avoid Rushing
In my time advising business owners, I’ve noticed that some get so excited or eager to sell their companies that they start rushing the process. While it’s understandable why some business owners want to speed up a sale—maybe they’re ready to retire or maybe they need the money to take care of a family matter—it’s important to avoid rushing.
When it comes to getting financial documents in order, rushing, more often than not, leads to mistakes that can significantly prolong the buying process. In trying to sell your company rapidly, you can end up slowing everything down and may potentially end up with a suboptimal deal. Patience is crucial. The more patiently and diligently you work through the selling process with the right experts by your side, the better deal you can land.
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