When is a Business Best Positioned to Sell?
Practically every business goes through cycles that are caused by competitive pressure, the economy, or other external reasons. So when the time is right to sell it’s best to start the process before a downturn reappears.
- Have the sales increased yearly for a few years? Upward trends in revenue are very important as they reflect an increasing demand for the company’s product.
- Have the operating margins remained constant or even improved over these past few years? If not, make sure to explain in such a way that the potential buyers are not as concerned with this indicator that often points to increased competition.
- Do these increases above have a likelihood of continuing in the near future? A buyer wants to avoid buying a business at its peak.
- Is there a concentration of business in a couple of customers? If that is the case it would be advisable to add other customers to the total revenue, which will dilute the concentration. If it is not, a buyer will appreciate this spread of business.
- Buyers prefer to purchase the business assets as this provides an income tax benefit in the future and also this significantly reduces the issue of unknown liabilities surfacing after the sale. If the company has elected “S” or “LLC” then selling the assets rather than the corporate stock can be provided to the buyer without significant tax detriment to the seller.
- If the real estate is not company owned make sure to have a lease that is or can be extended to continue the new owner in the location.
- Are there any significant capital expenditures that soon need addressing? If so, determine the cost and the financial benefits of the purchase and reflect this in the financial projections.
- Are there any unnecessary costs that can be eliminated or reduced? If so, a business is value on the cash flow that it generates so seriously consider making these changes or least add them to the financial projections.
- What are the growth opportunities? This could include industry expansion, weakness of competition, or simply improved business practices. A buyer will want this desirable option.
- Is there existing management that can continue the business on its current path of growth? If so, this expands the potential buyer list, which should increase the price offered.
“Selling a business is a once-in-a-lifetime and lifestyle change that often affects multiple generations. So, use a specialist with years of experience. While this can be done by the business owner in an attempt to be frugal, our 25 years with this specific focus tells us that often the owner is reducing the sale price in multiples over the money saved from not paying a success-based consulting fee.”, says Emmett Barnes, President and Founder of The Montana Group.