Most people understand that if they want to sell their house, then in order to get the best sale price, a lot of work that needs to be done before it’s listed on the market. Maybe the house needs a new roof, a fresh coat of paint, or at the very least a good de-cluttering and staging. A business is no different. If you ever anticipate selling your business, you will have to do some work in order to make it look as attractive as possible to potential buyers.
- Clean the Financial Statements. The financial statements are the primary tool used to evaluate a business and its viability as a going concern. Most closely-held or family businesses may have financial statement items that should be “cleaned up” before they are presented to a potential buyers. For instance, a buyer doesn’t want your vacation home on the balance sheet, or the excess payroll for your family members “working” for you. Buyers want financial statements that are accurate, correct, and reflect only the business they are interested in buying.
- Develop Your Management Team. While your business may be successful, is it solely dependent on you? If something happens to you, will the business suffer? Do you hold all the know-how and the business relationships? If so, you will need to work on making the business self-sustaining with key management that not only will “mind the store,” but also grow the business. A good test is to ask yourself what would happen to the business if you left for 1 or 2 months. Would it be a disaster, or would it thrive?
- Document Processes. Your business has becomes a success due, in part, by the processes and systems you have put in place to make the business as lean and efficient as possible. If you are the only one who knows these processes, they will do no good when the business in sold and you are no longer involved. A buyer will pay a premium for a business that is turnkey
- Re-evaluate Expenses. When buyers assess the value of a business, the general starting place is EBITDA. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, and is a decent measure of the strength of any given business. For instance, businesses being sold in your industry might be selling for 5x EBITDA, or maybe it’s just 1.5x EBITDA. These multiples vary by industry, however, in general the higher the EBITDA, the better the business will look to a potential buyer. Therefore, it is critical to consistently evaluate operating expenses with an eye towards continuously increasing EBITDA.
With a little bit of strategic planning and foresight, you can position your business to achieve the highest possible purchase price.
Estate & Business Law Group is your trusted partner when it comes to your life, your business, and your legacy. Call us at (847) 367-4460 to speak with one of our attorneys.