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.
Posted by Mark Bennett on Wed, Mar 03, 2023 @ 09:44 AM
I am not talking about looking at the books of a prospective business; I am talking about looking inside yourself and doing a self-assessment before you make even the first step down the complex road of trying to buy a business. No matter if you are an Individual, if you represent a Corporation or if you are an E-2 Treaty Investor, buying a business can be a very complicated and frustrating experience. There is a lot at stake. Making the right choice when purchasing a business can be highly rewarding while making a wrong choice can be a disaster. For most people, this is a one shot deal and you have to hit the target the first time. That is why it is crucial to evaluate yourself, before stepping out to acquire a business.
Ninety Percent (90%) of people that set out to purchase a business, fail to ever make a deal. That is because there is a lot more to buying a business than most people realize. The purchase of a business is a multi-stage process that takes acumen at every level. The first thing a buyer should do is some serious soul-searching. This step is also the most overlooked. Before you can find a qualified business, you have to know your own limits, your strengths, your readiness to invest your cash and to risk your financial future. You have to know your borrowing power, your management style and in some cases, your willingness to uproot your family and relocate. Most importantly, you should be honest with yourself about your willingness to make a total commitment to the success of the new business. This is no less of a commitment than getting married and in many ways very similar. Once you understand these things about yourself, you can then begin to identify qualified businesses that fit your individual or corporate parameters. It is only at this point that you can expect a successful business buying experience and not a colossal waste of everyone's time and money. So please, take a little time and look inside, before you try to buy a business.