Ready to sell your business? This is a bitter-sweet moment for many company owners, but it’s also an amazing opportunity to move on into the next chapter of your life. That said, you first need to ensure your business is in tip-top shape. Here are the steps you need to take in order to do just that.
Get Your Documents In Order
While we’d all like to pretend that we run a tight ship when it comes to our businesses – that we know everything that comes in and out and that we own all the necessary documents pertaining to the legality of our organization… this is seldom the case.
More often, most of us will have documents that we have mislaid, holes in our accounting, and even entirely missing assets! It’s time to track all of that down and get it organized, such that it is ready to pass on to your inheritors in a presentable manner. If you have any documents pertaining to intellectual property: find them. Organize your contacts lists. Find your old tax reports.
On a related note, you should also take this opportunity to get your business in the best possible shape. Ideally, you want a run of highly profitable weeks so that you are riding on a high when an investor comes to buy!
In any business, having a good estimate of net profit – accounting for all overheads, wages and tax – is a great way to judge the success of a business, to look for areas that can be improved, and to test hypothetical new plans. Of course, it is also useful when deciding how much to sell your business for.
One of the best ways to do this is with a spreadsheet programme such as Excel, which will enable you to tweak and edit the independent variables on the fly – either to update your estimated profits, or to test new ideas without having to re-write out your entire finances. Furthermore, your predictions, or current estimations of your finances as they are, can then be displayed in a graph or chart to make a powerful impression on a client, in a meeting or during a presentation. This is a basic form of “financial modelling” and a great way to start using it to guide decision making and analysis and can also be used as a form of business valuation where the value of the business is judged on post-tax profit. Not sure how to do this? For a quick estimate, try speaking with an M&A firm.
Very often, you’ll then sell your business for 5-10 times what you calculate you would earn in a given year. Even if you don’t use this method to evaluate your business (which is known as “Earnings Multiples”), you should still know the figure as it will no doubt factor into your eventual sale price.
You can let your business brokers do the rest!
Be Honest With Employees
You should keep the news that you are selling your business quiet for as long as possible. However, there will come a point where this can no longer be put off. At this time, you’ll need to inform your employees and the more honest you are about what is going to happen, the happier they will be.