How to Get Your Business Sale Ready

The dream of most entrepreneurs is to build a company and then sell it for a huge profit to a strategic buyer. We read about the YouTubes of the world and other acquisitions that lead many people to think they can do the same. So how do you set up your business for that strategic sale?
1) Start with the end in mind – show some profits
Most businesses use smart accounting practices to reduce their profitability. By doing so you pay less taxes but you also can hurt the price tag you get for your business. Buyers typically will look at the past three years of financial data, most important of all is your bottom line, so you need to show them that you are making solid profits. You may pay more taxes but it will pay off in the long run with a higher valuation.

2) Know when to get out
Industries go through cycles. There are booms and busts and you need to time them well to maximize how much you can charge when selling your company. You cannot always sell when you want to because the demand will not be there to justify selling. For example, if you had an online business and tried to sell it after the dot com crash you would not have gotten a lot of bidders eager to buy you out. You can never perfectly predict the market but a good indication is when big companies who are normally not in your industry start making big investments.

3) The perfect buyer is likely not be in your industry
The best valuations usually come when someone has a burning desire to own what you have (a strategic buyer). Strategic buyers typically will look at your business, see how long it would take to get to your level of technology and market penetration, and then make a financial decision. If it would take them one year, for example, to get to where you are at now, how much money and opportunity lost would it cost them to do it themselves?

These strategic buyers are usually either companies in your industry who need an edge (ie you do something that compliments their offering very well) but usually they come from outside your industry. The perfect buyers to target are companies which are cash rich, have begun making acquisitions in related industries, and have made statements about expanding their markets.

4) Be flexible
Deals often fall apart because the entrepreneur is too stubborn about the terms of the deal. However don’t just take it easy and accept the first offer that comes to you. You have spent a lot of time and effort building your business and you deserve a good price. That being said, you should plan out in advance what you are willing to accept and be prepared to be flexible on some of the terms. Besides pricing some of the common areas where deals can fall apart include:

• Owner financing – the company buying you may ask you to finance some of the purchase price. This means that you do not get all of the money right away. You will get a portion up front and the rest financed over a period of time.

• Equity financing – you might get asked to trade some of the sale price in for equity shares of the company that is buying you. An example would be to get 50% in cash right away and 50% in equity of the combined new business. This requires you to take a longer term approach and you will need to feel comfortable with the management team that will be running your business. If their company fails your shares will be worthless.

• Transitioning – you will probably get asked to stay on board with the new company to help them make the transition and understand how your business works. It could be as little as a few weeks up to a couple of years. Are you willing to work with the new company for two years to help them make the transition?

5) Talk to your advisors
The most important person you need to talk with is your lawyer. They will make sure that all your ducks are lined up properly and that you do not get taken advantage of in the final purchasing agreement. Make sure you do your homework and get a good lawyer who has been through the acquisition process a number of times before. You want a bulldog in your corner. You should also talk with other entrepreneurs or a business broker who has sold businesses before and ask for their advice.

Here at Business Miami Florida Business Brokerage one of our experienced brokers would be happy to talk you though the sale process and offer a free appraisal so you know