Most people have a will. Your business needs one too, in the form of an exit plan. Most business owners will not sell voluntarily. Why? Selling a business is not the best way to make money from it.
Most small businesses sell for 1-3 times adjusted earnings (larger ones can sell for more). So, if you are planning to stay working in your business for a longer than a few years, it pays to keep it. However, there are factors that can get in the way of your business “status quo” , and you need to have a plan to sell it. What do we typically see happen?
- The business owner can no longer physically work. Death or disability will force a sale. If this happens, time is of the essence! The businesses’ value can evaporate daily!
- The owner hates working in the business. Burn out is real and life is too short to be miserable. Understand you can simply sell and buy something else!
- The business has unsolvable cash flow issues. Either it is a victim of its own success, and grows too quickly, or more often, gets into trouble monetarily. Time to sell in either case.
- The business has grown beyond the owner’s capabilities. Many entrepreneurs are not good corporate CEO’s. Many times the founder is not the person who makes a business a huge success.
- Outside economic or competitive forces change the industry, and your business is in danger or, there is huge opportunity. Either way you see the writing on the wall, and it is time to sell!
- A strategic buyer comes along and will pay the owner above a fair market value price. It may be time to cash, in rather than compete. Your proverbial ship has come in!
Many times, there are combinations of reasons why the time to sell will come…and often it comes suddenly. What should you do in order to plan?
Formulate a plan. Write it down. Tell people where it is.
- Have your specific wishes known by your family, senior staff, and advisors. Who is in charge? Should they sell immediately? Who should they listen to for advice?
- Give someone power of attorney or have someone able to sign for your company in your absence or disability.
- Get insurance! Have a Life & Disability policy! A buy-sell agreement can easily be funded by insurance and make everyone whole in often a very turbulent time.
- Meet with a business broker, spend time with them, and befriend them. Review your financials annually or bi-annually with them and understand your business market value. A strong relationship with a broker and knowledge of the marketplace will make selling your business relatively painless.
- Have a sell price! When you reach your goal, punch out and do something else!
- Be realistic and unemotional. A business can become like a child to entrepreneurs. This can lead to bad decisions about when to sell or dispose of a business. Try to listen to others and understand when the time to sell is upon you.
One thing is certain in business ownership. One day you will not own it. The only question is how that is going to come to be, and with help, it can be a very profitable and easy transition!
Andy Cagnetta owns and operates Transworld Business Advisors. He joined the company as a sales associate and later purchased it. Transworld is an international franchise business and franchise brokerage, with thousands of businesses for sale and franchisees in the United States and Internationally.
