Don’t look too far ahead to the finish line when thinking about selling your company. Have you done the necessary work to ensure that you have the processes and documentation in place for that to be successful?
Two of these processes include cleaning up your small business financials and putting together a comprehensive exit strategy. The more work you can do now, the faster you can spring into action if your business broker identifies a strategic buyer right away. Prospective buyers want as much transparency as possible in today’s business environment.
The same is true of strategic buyers who are thinking about purchasing an established company. This means you need to be as organized as possible for the due diligence phase of the sale. Avoid red flags that can cause problems with your negotiations by working with an accountant to present clean business tax returns and financial statements that go back at least three years. Don’t keep any family vehicles on the business books, and anticipate the possibility of a buyer asking for year-to-date results in addition to your previous three years of financial statements. Many people are getting into the due diligence game by being proactive and making these red flags less likely to pop up after a strategic buyer is already interested in business financials and the sale.
Someone highly interested in your company could back away quickly if you don’t have your finances in order. So you should expect that they’ll be digging into the details and doing the work on your side to make that a more straightforward process that builds their confidence. In addition to cleaning up your finances, now is an excellent time to prepare your exit strategy after evaluating your business finances.
All too often, an ill owner, an aging owner, or a lack of interest in succession from involved family members means that an exit strategy needs to be implemented right away. You have to think ahead about what your exit strategy looks like and what the transition will be when you step out of the company and someone else steps in. Look within the company to see what trusted employees would likely stay on in the event of a transition.
This will be one of those details that you need to negotiate with your strategic buyer in deciding whether or not they will completely reorganize the talent within the company or look to promote existing employees. The more you can position your current staff members as part of an overall strategic team that is necessary for ongoing results, the more likely they will stay on and be interested in working with a new partner. Your new partner confirms their interest after looking at business financials but wants to be convinced about your transition plan, too.
A transition period is also critical for this process. The transition period makes it possible for everyone to get to know one another and to feel more comfortable about the necessary adjustment period that will evolve. If you’re ready to sell your business, contact the knowledgeable brokers at Website Closers today.
One of the things that scare small business owners more than tax returns is cleaning up their financial statements, especially during transition, and it ought not to be so. Selling a business is a milestone that needs a deliberate and thorough financial planning process. Still, the steps below help have a smooth sale process while achieving a financial cleanup.
Keeping a clean financial statement is the most critical aspect of preparing for the sale of your business. Buyers will have more confidence in buying your business based on the financial health reflected in your financial records. You should ensure that all your important financial statements, like balance sheets, cash flow statements, and income statements, are up to date. They provide the best overview of the economic health of your business. If you can’t do this on your own, you can consult professionals like Website Closers to help get an accurate and up-to-date record. A clean financial record is a consistent record. Inconsistent records are red flags to buyers and can ultimately reduce the value of your business.
In preparing the required financial records for a smooth transition, it is vital to adjust the business expenses that are not important for the current business runs. They can, however, be added back to business to figure out the actual profitability and growth opportunities available to the business. These expenses include salaries and benefits paid to you as an owner or non-recurring expenses like legal fees.
You should know that just because your business is in a transition phase doesn’t mean that it has to run on autopilot; you should continue to support the growth of the business during this phase by still investing in marketing, inspections of operations, and the development of a capable management team. Even after the sale, depending on the structure of a sale deal you have with your buyer. Some might request that you stay involved in the business for a period that can range from three to 1 year. This is to aid the smooth transition of the business. For more help, you can consult Website Closers on how to prepare a transition deal and find suitable buyers.
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