What Is The Difference Between Cash Flow And Net Income Preparing Your Business For Sale – How to Cash Out

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Preparing Your Business For Sale – How to Cash Out

Smart business owners know that running a successful business requires being a great salesperson, controlling your costs, and providing incredible customer service. However, when it comes time to sell your business, it’s important to plan a strategy that will leave you and your business in a great position. Creating and implementing an exit strategy for your business can give you a lot less stress and peace of mind knowing that when it’s time to sell, you’ll be ready.

Selling your business should be a planned process that will get you the highest possible price for the business; not a sale based on uncontrollable circumstances such as health problems, financial problems or untimely death.

Developing a successful exit plan should begin well in advance of your target exit date (I recommend at least three years). Here are some things to consider when getting started:

Sort out your personal financial picture.

As a prospective seller, make sure you have adequate coverage with life insurance, disability insurance, and even business interruption insurance to protect your business in the event of a disaster.

I also suggest meeting with a certified financial planner. Often a salesperson’s greatest asset is their business. If the owner is forced to sell after several months or years of minimal profitability, they will not be able to sell at the highest price and may not be able to walk away with the money they expected. A planner may recommend building cash reserves or buying real estate to balance your portfolio.

Understand what customers are buying.

Most business buyers are primarily buying cash flow or net profit. Demonstrate your company’s financial strength by providing them with (at least) 3 years of profit and loss statements, 3 years of federal tax returns, an equipment list, an inventory list, and a copy of the facility lease.

The rental of the building is equally important. When a business changes hands, an important element for the new buyer is to be able to secure a long-term lease. Lease negotiations can make or break a transaction so it’s best to know the landlord’s intentions as soon as you make the decision to sell.

I also recommend that you systematize your operations by creating an operations manual for each area of ​​your company. Standard operating procedures provide the buyer with an existing system for success and will allow you to easily transfer information to the new owner.

what it’s worth

Now that you understand what the customer wants, you need to determine what you as a seller want. Every seller must ask themselves, “How much cash do I want to get at closing?” or “What is my premium price?”

A key component to getting the highest price is for the seller to offer to carry the promissory note, making the seller the banker for a portion of the purchase price. By offering to carry the banknote, the seller shows the buyer that he believes in the business and that he will remain financially invested in the company’s success even after the sale.

When pricing a business for sale, the more reasonable the price of the business, the faster the business will sell. Be sure to hire a licensed business appraiser or an experienced business broker to give you an opinion on value. By adding value back to the financial statement, the buyer will have a better idea of ​​how much revenue to expect when they take over the company.

Once you have your company’s valuation, compare your company’s current value with your proposed exit date and expected prices. Is your premium price realistic? Is the timeframe realistic to achieve the necessary sales levels to achieve that price? In order to achieve your goals, all elements must come together.

Getting the maximum price.

If you find that you will not be able to achieve the desired price, you need to start implementing switching strategies as soon as possible. Start with a simple SWOT analysis that looks at your company’s strengths, weaknesses, opportunities and threats. Necessary strategies may include creating a marketing plan to increase your sales or a cost containment strategy to reduce your expenses.

As a business owner, you deserve the highest possible price for your business. Plan your outbound strategy with the same amount of thought and detail that you plan your customer service strategy or put together your marketing plan. After all, all entrepreneurs will leave their jobs whether they plan for it or not, and a good plan can be the difference between the “retirement” of your dreams or simply taking a long vacation.

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