Most business owners are so busy running the day-to-day operations of their business that they do not give ample time to the best time to sell a business. This is unfortunate because there are many factors to address and much to prepare before one tries to sell a business successfully.
In a perfect world, the best time to sell a business is when the company is performing well with future projections looking even better, the national economy is strong and the industry is getting a lot of attention from Wall Street investors. However, regardless of the state of the economy or the industry, there are certain things owners can do to sell a business and make it as attractive as possible to potential buyers. To build market value and sell a business with the greatest success, focus on the following:
- Standardize and document all company procedures
- Eliminate liabilities or liens and resolve any outstanding litigation
- Investigate transferability of leases as well as sales/supplier contracts
- Perform maintenance on company equipment to ensure it’s in good operating condition
- Secure key employees with employment contracts
- Eliminate non-performing or non-contributing employees from the payroll
- Establish a management team that can operate without the current owner
- Reduce revenue reliance on the one or two largest customers
- Spruce-up the physical aspects of the business’s facility
- Have clean, verifiable financial statements for the past three years
To improve cash flow and sell a business with the greatest success, focus on the following:
- Reduce unnecessary inventory
- Collect any outstanding receivables
- Re-negotiate favorable key supply contracts
- Reduce personal adjustments on Income Statements
- Ensure financial controls are established
Owners should be aware that there is an inherent conflict that arises with running a business and getting ready to sell a business. Many businesses are run with the objective to minimize tax liabilities. Unfortunately, the same techniques and accounting practices that minimize taxes also minimize the value of a business. Ideally, plans to sell a business should be made three-to-five years in advance of the anticipated sale time. This will allow adequate time to make changes and demonstrate a track record of maximum profits.
In addition to setting a future target date as to learning when is the best time to sell a business, an owner should ask themselves what they want to get out of the sale. Do they just want to finance their retirement? Is it important that their son or daughter remain with the business? Can they gain tax benefits by financing part of the sales price? Do they want to ensure the new owner will treat their customers with the same level of service? Make a list of priorities and seek the advice of M&A professionals to ensure there are no surprises during the business sale process.
When the decision has been made to sell a business, the owner should also be conscious of the need for confidentiality. Any leaks about your wish to sell a business can cause panic and fear for the employees, suppliers, landlords and banks. Great care must also be taken to assure that competitors and customers do not learn of the planned sale. Competitors may sabotage an owner trying to sell a business by leaking the information to employees and customers. Key employees may begin to look for other employment. customers could be concerned about how the business will perform under new management and may seek alternative sources for their needed product or service. If any one of these were to happen, the value of a business could be significantly decreased. When you decide to sell a business, work with an experienced business transfer specialist to minimize this risk. The name of the business and any detailed information should be disclosed only after it is determined that a potential buyer has the skills, experience, financial capability and leadership required to run your business successfully. In addition, when you sell a business make sure ALL potential buyer sign a non-disclosure agreement stating they will maintain confidentiality on all information discussed.
By now it should be clear that early planning helps to answer the question when is the best time to sell a business. Planning will also help you generate the most value of your company at the time of sale and will also help expedite the ownership transfer. To summarize, focus on building market value and improving cash flow, prioritize the terms of the sale and seek the help of M&A professionals.
Learn more about when is the best time to sell a business: American Fortune Mergers & Acquisitions
We have taught our clients “when is the best time to sell a business” in the following areas of the USA: Columbus Ohio, Atlanta Georgia, Lexington Kentucky, Bowling Green Kentucky, Nashville Tennessee, Memphis Tennessee, Cincinnati Ohio, Dayton Ohio,Toledo Ohio, Los Angeles, Cleveland Ohio, Pittsburgh Pennsylvania, Baltimore, Maryland, Indianapolis Indiana, Chicago Illinois, Detroit Michigan, Flint Michigan, Tampa Florida, St. Louis Missouri, Kansas City Kansas, Des Moines Iowa, Minneapolis Minnesota, Louisville Kentucky, Oklahoma City, Oklahoma, Dallas Texas, Fort Worth Texas, Denver Colorado, San Francisco California, Salt Lake City Utah, Phoenix Arizona, Lexington Kentucky, Los Angeles California, San Diego California.