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Want to Sell a Business? You may not be ready! |
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As buyers get pickier, owners must do more to spiff up companies, according to Arden Dale’s article on the WSJ online on January 8th. (For the complete article go to: http://online.wsj.com/small-business)
THE HOPE of entrepreneurs is that they will sell their business for a bundle and retire on the proceeds.
THE PROBLEM is that most of them don’t take steps to ready the company for a buyer.
THE SOLUTION is several years of preparation before the anticipated sale.
Small business often lack key elements that buyers look for, such as proper financial records or detailed documentation about how the business is run. Moreover, most owners have unrealistic expectations about the price their business can fetch. As a result it takes much longer than expected to close the sale, according to the author. (And the risk increases with time, we may add)
According to a recent study many advisors believe that 7/10 mid-sized businesses will change hands during the next decade and 90% of those companies are ill-prepared.
For their part, buyers are getting more demanding than ever. Due diligence similar to larger public companies listed on Wall Street, is now the norm on a $ 5 mil. transaction on main street.
So, how can a business be prepared for sale?
– According to the experts, small businesses should get organized 3-5 years before the anticipated sale. Buyers often look on the long term history of financial results of the business.
– Financial statements are a good place to start. As confidence in the financial statements increases, even more so if they are audited, the price is likely to increase as well.
– Financial records should reflect the best operating profitability and cash flow of the business. If expenses are on the generous side they should be scaled back.
– Small firms should take a long and tough look at manufacturing, safety or other processes essential to the business and clean them up as much as possible.
Finally, when business owners decide to sell they should higher a professional advisor to give them a realistic estimate of the sale proceeds and guide them through the sale process.
We agree with the author, and we can add a lot of items to his preparation list. If you really want to sell your business, we can help you in every step of the way.
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