Every year, across the nation, thousands of small to mid-size businesses attempt an ownership transition, and only 17 – 20% SUCCEED! Obviously, we think this is a dreadful statistic that needs improvement! Our success ratio is much greater!
The #1 reason why business owners are not able to complete a sale of their business is due to unrealistic price expectations! Have you ever had a professional business valuation prepared for your business? If not, now may be the time!
Many business owners are not aware of the key elements that will have the most impact on the value of their business. Here are just a few of the key elements:
- Net profit + Owner compensation (or EBTIDA, depending on size of business)
- Clean financial statements and records to validate the net profit and owner compensation.
- Upward trends for revenue and profit
- Maturity of the business – most buyers like a business that is at least 5 years old.
- Owner involvement and staff depth – the less the business depends on the owner, usually the higher the value!
- Depending on the type of business, too much customer concentration in one customer, or one industry, can be challenging and scary for a buyer.
- Property/lease status
- Business automation – embrace the 21st century!
- Keep your equipment up to date
- Obsolete inventory does not have value!
These are just a few things to think about!
The average time it takes to sell a business, across all industries and regardless of the size of the business, is 7 months! So, some businesses sell rather quickly, but many others take much longer to sell! We recommend expecting a minimum of one year to sell your business! It doesn’t happen over night.
Assemble a team – an attorney doesn’t know how to value a business, a business broker isn’t a competent legal advisor, and neither a business broker nor an attorney can properly advise on complex tax issues, unless they also happen to be a CPA! Therefore, a good team will consist of a transaction attorney and a CPA to protect you legally and financially, and a business broker to properly advise on business value and find the buyer!