Posted by Mark Bennett on Tue, Apr 06, 2023 @ 05:53 PM
At some stage in the selling process, a seller will inevitably ask if they should restock inventory, replace a person, run ads, or any number of thing they would normally do. The answer is always the same. "Run Your Business as if it will Not Sell." There are never any guarantees that a business will sell, even if the contracts are signed. I have seen seemingly done deals fall apart because of deaths, the economy crashed, banks decide not to lend, or others reasons I don't like to think about. You don't want to be caught neglecting to run you business as usual at that point.
When a buyer is considering buying a business, generally it is because the seller is doing things right and the buyer wants in on it. He sees how the buyer runs things and has a healthy respect for the business they have built. Many times the buyer requests or requires that the seller stay on to run things for a few weeks to a few years. During this period when the business is in play is no time to change the way you would manage your company. It is crucial that people are hired and trained, that raw materials are purchased, that inventory levels are maintained, and most importantly that sales are made.
Even if a buyer requests that you don't rehire people or let inventories drop, run it as if they had never entered the picture, because they might disappear tomorrow. If the seller disappears and you are left standing where you started, you will be glad that you did not disrupt your normal way of doing business to accommodate someone that is no longer around. So the answer to the question is always the same. Run it as if it won't sell.
Posted by Mark Bennett on Wed, Mar 10, 2023 @ 11:19 AM
You have built a business and you have decided to sell it at some point in the future. Ideally, you are thinking ahead a few years. Tactical planning now can help insure that you will maximize the selling price when the time comes. There are several tactical financial decisions to make prior to attempting to sell the business.
My number one recommendation is to report all income so that you can maximize your bottom line. Sellers generally will request 3 years of financial history in order to estimate the value of the business. If you are not reporting all the income or stealing from your company, stop that practice and start reporting every penny. This is important because every dollar on the bottom line gets multiplied 2 to 5 times to calculate the sales price and monies that cannot be accounted for, will not be used in this calculation.
Next, if you do not have a good accounting program, get one. Begin keeping your books according to standard accounting practices. Sellers want to see a clean set of financials. Keep in mind that sellers have accountants, bankers and lawyers advising them on the purchase and they don't like to have to ask a lot of questions or get a lot of explanations. They want to look at the books and see that they are without a lot of discretionary spending.
And last, it is a good idea to begin to pay off debt. A debt free company is very appealing to a seller and their advisors. Debt is usually a necessary way of conducting business, but it is very impressive to show a debt free business to a prospective seller. A debt free business shows that the business is less risky and the lack of risk helps command a premium selling price.