Posts Tagged ‘selling your business’

Some business owners forget to plan for their exit strategy, others recognize that the last part of their business ownership can have a major effect on what the financial reward their business can provide them and the legacy that they will leave with their employees, customers and the community when they leave their business.

Increase the Price You Get for Your Business – Businesses are usually run just how the owner wants. However, you can probably get make your business more salable and valuable in the marketplace by making it more appealing to a buyer. Many of these changes have bigger impact if they are done long before the business is put on sale. To get the most impact, these changes should be made at least one to two years before you are thinking of selling.

Here are just a few changes that can have a big impact on the price you get for your business:

• Key Employees – One of the biggest concerns buyers have when they look at your business is that when you walk out of the door, much of your business goes with you.
• Report Income – When it comes to reporting income, you, like most small business owners, want to pay as little in income taxes as possible.
• Customer Concentration – Customer concentration is a major issue when more than 10% of revenues come from one customer or when more than 25% of revenues come from the top five customers.

An individual owner may have been in the business for a long time and have a strong enough understanding of how the business is doing without any detailed financial reports. The buyer will not have that same information and ability.

Without adequate information, most qualified buyers will not complete a deal. If they do complete the deal, they will probably assume the worst case scenario and discount the price accordingly.

Sellers should work with their accountants to develop detailed reports that will help them and buyers to understand their businesses better and provide more assurance that the financial information is accurate.

When it comes to reporting income, you, like most small business owners, want to pay as little in income taxes as possible. Consequently, you and your accountant actively look for ways to delay reporting revenues and accelerate reporting expenses.

When it comes to selling your business, you have just the opposite objective. You want to show the business making a large profit for many years.

Buyers usually look at the tax returns for the previous two to three years. This is why it is so important to start the process long before you want to sell your business.

There are three ways that you and your accountant can accomplish these conflicting objectives:

• Identify and create an audit trail of those items that are expensed on the business tax returns but will not necessarily be incurred by a new owner, i.e., personal use of a business vehicle.
• Do not deduct items which are personal in nature for which you do not wish to create an easy-to- follow audit trail.
• Make sure that all income is being reported on the tax returns

The tax return is one of the key documents that buyers will use when they are deciding if the business is really earning enough money to justify buying the business and how much they should pay for the business.

Small businesses usually sell for between one to three times historical earnings from tax returns. Every dollar of income that is hidden in the tax returns can mean one to three fewer dollars in your pocket when you sell your business.

One of the biggest concerns buyers have when they look at your business is that when you walk out of the door, much of your business goes with you.

Employees, customers and suppliers may be more loyal to you than they are to the business itself. If this is true, then much of the value of the business cannot be sold to someone else. This can substantially reduce the price you can get for your business.

One way for you to avoid this problem is to establish a team of key employees who will stay after the sale and maintain strong relationships with current customers and key suppliers.

Having a knowledgeable loyal employee team in place, people who have positive relationships with current customers and key suppliers increases the likelihood that a buyer will be willing to pay the full value of your business.