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SELLING A BUSINESS

6 Questions To Ask Before Selling Your Business
 

Done properly, the sale of a business can bring gratification and financial freedom. Done poorly, it's a disaster.

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When is the best time to sell a business? This is a question that has haunted successful entrepreneurs since time began.  Successful timing in business has been described as a function of finding the right balance between supply and demand. If your timing is right, you can afford to get a lot of other things wrong.  Millionaires are created when business owners hit the market at just the right time with the right product or service.

Technology companies have proven this over and over. Facebook could have been just another AOL, but they delivered the right service to the right market at the right time. They made a lot of mistakes, but the demand for their services and their explosive growth launched them into the Internet stratosphere.

Every business owner of a privately or closely held company has a vision for the future of their business. It generally involves some type of transition where the owner passes the business on to other family members, business associates, or sells the company outright. According to the latest PricewaterhouseCoopers study of family-owned businesses, 25% of them will experience an ownership transition during the next five years.

The reality is that there is no best time to sell. If you wait for the stars to align perfectly, you could very well die before you transition your company to new owners.

Yet there are some factors that will help you determine when to sell, and several that can have a material impact on the selling price. If you are planning to sell your business, ask yourself these six important questions first:

•    Is the business growing, with increasing sales and earnings?

You will always get more money for your business when the trends are upward and improving. The key is to sell on the way up. Once you hit the top of the mountain, and go over, and revenue and earnings are headed downward, the value of your company declines as well. Sell when you are on top!

•    Do you have a strong backlog of business that ensures future sales and profits?

Potential buyers want as much assurance of future sales and profits as possible. Having a significant backlog of orders from a diverse range of clients provides comfort and security to potential buyers and boosts value.

•    Do you have a solid management team in place?

Buyers value a strong team, and understand its importance in the future success of the company.  This contributes to higher valuations.

•    Do you operate in an attractive market or niche business?

If the market for your services or products is booming, or if your company is one of only a few that provides a unique product or service, your company will command a higher price. Buyers are attracted to successful businesses that could easily provide access to growing markets or provide a unique, niche product or service.

•    Have you developed a transition plan?  

Business owners who plan ahead are more successful than those who do not. If you wait until you are ready to sell, you are generally at least one year too late. In today’s market it takes 9-12 months to sell a company and to maximize the return to the selling shareholder(s).

•    Do you understand the sales process?  

Selling a company is a process. Make certain you get good professional advice and understand both the opportunities and the pitfalls. Understanding the sales process enables you to stay focused on operating the business--which should be your #1 priority during the sale.

If you are thinking about selling your business, ask yourself the six questions listed above. Identify where you are weakest and attack those weaknesses before you attempt to sell your business. It will make the transition easier, and your company more valuable.

Develop a transition plan.  Even something as seemingly simple as passing the business down to the next generation requires a plan.  How will family members be trained in the business?  Are they even interested in the business? If not, do you have a plan “B” to fall back on?

During WWI Winston Churchill said, “He who fails to plan, plans to fail.”  If you need help planning, seek the advice of a professional organization that is experienced in helping business owners through this important transition.

Selling a business is often one of the most important decisions a business person will make in their career of owning and running a business, and often in their life. Done properly it can be highly rewarding. Done poorly, it can be a financial disaster.

IMAGE: Dwonderwall / Flickr.com
Last updated: Aug 22, 2013

DAVID MAHMOOD created and sold seven different businesses before founding Allegiance Capital in 1998, which provides mergers and acquisitions financial services to middle market business owners.
@MiddleMktMandA




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