Timing is essential when a business owner considers selling their business. Two of the most important decisions when deciding to sell your business are when to sell and how to sell your business. External factors – like changes in the economy, availability of funding, and the rise and fall of interest and tax rates – have a profound effect on the ability to sell your business and it’s value at sale time. One additional factor is already having an effect on the sale of businesses: Baby Boomers.
In real-estate there are “buyers markets” and “sellers markets” and the same is true in the corporate world. As a significant amount of our working population is rapidly approaching retirement, all owners and advisers should be prepared for an elongated “buyers market” to sell a business. This is because of the large number of Baby Boomers who, in the 1960’s and 1970’s, chose to open their own businesses and now are looking forward to cash-in and enjoy retirement. It is predicted that 40% of US family-owned businesses will go through a leadership change in the next five years. This equates to the creation of $5 trillion in liquidity by 2015.
This creates a very exciting time for business owners as well as prospective buyers and the consultants that will assist with these transitions, but one concerning issue looms: Baby Boomers are not adequately preparing for these changes in ownership. According to a recent survey in Mergers & Acquisitions Today, 65% of small business owners don’t know what their company is worth and only 15% of them have an exit strategy. With so much personally and professionally riding on smooth leadership/ownership transitions, it’s disappointing so many owners leave many key issues to be dealt with “when they get around to it.” Not only could this jeopardize the long-term success of their business, this could lead to owners leaving significant money on the negotiation table.
The simple act of planning and preparing for an owners’ exit (via an exit strategy) will give baby boomers that choose to sell their business a significant advantage over others.
Having an exit plan and knowing a company’s true value are two advantages when selling your business. For Baby Boomers, every advantage will help in their soon-to-be saturated market. Another way a Baby Boomer business owner can gain an advantage over their competition is to be aware of what mistakes a typical seller makes and learn how to avoid them. The following is a list of some of those mistakes:
1. Picking the wrong time to sell – Seller have a habit of waiting too long to sell your business. Yes, they need to be ready, but the market needs to be ready too.
2. Rushing the sale – It’s human nature that, when you are selling your business, you want it to go quickly. It’s important to understand, though, that finding a suitable buyer and settling on an appropriate value can take several years from start to finish.
3. Only negotiating with one buyer – Although business owners may feel more in control when dealing with a single suitor, generating interest from multiple buyers can significantly increase the probability of selling the business at (or close to) the asking price.
4. Misinterpreting the buyer’s motives – Sellers often dwell on the business’s past performance rather emphasizing the business’ growth potential. Buyers will ALWAYS be more focused on future revenue projections, return on investment (ROI), and the potential for growth.
5. Poor documentation – Buyers will ask for 3-5 years of historical financial information as well as documented policies, systems and procedures including recast financial statements and five-year pro-formas. All of this is expected to be backed by solid research and analysis that shows the potential for new business owners.
6. Assessing and negotiating offers – businesses usually do not sell for all cash. Most businesses are sold with some degree of seller financing, earn-outs or stock in the acquiring company. Negotiation skills are vital in many areas including terms of the transaction, legal, personal, tax and financial issues.
Learn more on how to sell your business by clicking on this link: American Fortune Mergers & Acquisitions.
American Fortune Mergers & Acquisitions has taught clients how 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.
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