The economic crash of 2008 did more than simply cause economic and employment problems, it also made business owners and prospective buyers stop and think about the timing of a business transaction. Particularly, business owners deferred listing their businesses for sale because the market price for healthy businesses took a hit as a result of the overall economic conditions.
If we ignore the puffery of the election year, there are still valid questions regarding whether or not the economy is moving in the right direction. Consequently, there are still questions lingering in the minds of business owners regarding the timing of a business sale.
Remember the Fundamentals
No matter what is happening in the economy at large, the value of a business and the price it can fetch is always driven by its ability to create value for customers as measured by profits.
There are different general rules for valuing a business. Variables include the industry and type of the business. A good business intermediary can help you apply the appropriate rule and determine what your business is worth to an average buyer. Likewise, a good business intermediary can help a potential buyer establish a price range to be expected for a particular target business profile.
Are you Trending the Right Direction?
My family watched The Voice this past spring. As a result, we were introduced to the concept of “trending” on Twitter. When a particular identified topic or entity is mentioned by enough different Twitter accounts, it is said to be trending.
In business, the trending that really matters is in the area of profits. When you chart out your gross sales, net income and EBITDA, you want to see a line that is gradually moving higher. This positive trend will communicate value to a potential buyer and support a price on the higher end of the range for that particular business profile.
Many business owners that are ready to sell are wanting to retire and are no longer putting as much energy and innovation into the business as they used to. This often results in a downward trend from a peak. If this describes your business, the you may want to do some planning and implementation before you are really ready to list your business for sale.
Do you have a Plan?
Many business owners simply decide one day to contact a business intermediary and list their business because it’s time to move on. Unfortunately, the business is not ready for an ownership transition and the actual sale can be negatively affected.
In order to maximize the value of your business in the eyes of a buyer, you should strongly consider developing an exit plan (also known as a succession plan) that provides 3-5 years of preparation for the ultimate sale of your business. You can use this time to get your sales moving in the right direction, your employees trained and empowered to carry on without you, and your business systems prepared for the next phase of your business’s life.
A good exit plan will involve all your key advisors, consider where you are now and where you want to be on the day of closing, and map out an action plan to get you to your desired destination. Planning with a business intermediary helps to avoid the silo effect that often occurs when you go to each of your Key Advisors asking for advice about transitioning your business. The business intermediary can keep all of your Key Advisors informed and communicating with one another while compiling all the relevant information and planning into a master exit plan that will serve as your road map to an optimal exit from your business.
Anthony Wayne Business Exchange provides business succession planning as well as business brokering services for businesses of all sizes. Contact Jim Hanson for more information about business succession planning or general information about Anthony Wayne Business Exchange.