How to Get Top Dollar When You Sell Your BusinessYou might believe your business is strong, but to get top dollar when selling it, you need to be able to prove it.
You’ve worked hard to build the best, most profitable business you can. So when you’re ready to sell, you want to pocket every penny it’s worth. We’ve rounded up some key advice on how to get top dollar for your business when it’s time to walk away.
Show proof of success
Document your success to help a prospective buyer see the value of what they’re getting. Many documents are “table stakes” — for instance, you need five years of financial reports for starters. But it’s the non-essentials that can make the difference.
If you have a business plan — especially if you actually achieved the goals you laid out — share it. Collect evidence of good PR, like business awards, news articles and accolades. Said Jennifer Martin, founder of Zest Business Consulting, “It’s a way of saying, ‘don’t take my word for it; look, other people know how valuable this business is.’”
Cultivate the right kind of buyer
There are many ways to find potential buyers, but Martin said it often makes sense to work with a business broker. It’s their job to bring qualified buyers to the table so you can concentrate on running your business.
If you choose not to hire a broker, talk to key employees and family members to gauge their interest. And don’t neglect trade organizations and your local competition.
Some of these options may yield buyers willing or able to pay more than others. “If you’re selling to people already in the trade, they understand the business and appreciate the value of what you’re offering,” said Martin.
The downside of offering your business to members of a local trade organization or competitors is that you can’t keep the sale a secret, and competitors might use the knowledge against you. And even if a competitor buys your business for a great price, they might plan to shut your business down. “That might not be the legacy you want to leave behind,” said Martin.
Make sure your books are in order
Depending on your accounting practices, you made need to adjust your books for the buyer to reflect all revenues and profits.
“Many business owners do not necessarily reflect their full revenues in the reports they show to the IRS. When selling a business, any revenue not reflected in those reports will be considered not real,” said Marc Prosser, former CMO of online broker FXCM and co-founder of Fit Small Business.
Also ensure all profits are represented. “There are times when small business owners under-represent profits unintentionally,” said Prosser. This can happen if you buy a lot of inventory at once, such as in advance of a major season. “From the business owner’s perspective, their profit is the cash they have in the bank after all expenses paid. But there might be thousands of dollars of profits sitting in the storeroom that they don’t consider.”
Pay attention to your credit profile
According to Sean Porat, co-CEO of credit bureau Scorely, “Regardless of the health of your business in other ways, buyers often focus on the business’s credit profile.”
A strong business credit profile is valuable for two reasons. First, it shows there’s no record of collections, liens or judgments against your business. Second, buyers want the flexibility associated with buying a business that has an established reputation and can obtain a loan or good credit terms.
Sell in your high season
Bobby Thomas, a serial entrepreneur who has sold several businesses, said timing is important, especially for online businesses. “Online businesses are typically valued at the last three to six months of profit,” he said, and that can have a significant impact on the apparent value of your business.
Most businesses are at least somewhat seasonal — retail businesses and online stores see a spike during the holiday season, for example. “My best advice is to wait until the season has arrived and sell in the last month or two of that season,” said Thomas. That way, revenue has spiked, putting your business in the best possible light.
If you do have seasonal fluctuations, be transparent about the details. Let potential buyers know in which months your sales spike and decline. Properly represent costs during the off seasons and how you staff for or otherwise accommodate your peak sales periods.
Don’t be your company’s single point of failure
Finally, take steps to ensure your business can survive without you, and prove to the buyer that it can.
Kelly Quann Bianucci, managing principal at Discover Capital, said, “The most important thing to do to maximize the value you get…is to make sure that no single person is critical to the business’ success.” That includes you. “I’ve seen so many businesses in which the majority of the revenue is tied to the relationships of the owner. That will scare away buyers who fear that revenue will disappear after an acquisition.”
To assure the buyer of a smooth transition, document your processes in a business binder and a marketing binder. Draw up an org chart if you don’t have one. Make sure your staff is thoroughly trained.
If appropriate, also put together a sales binder that includes sample scripts, price lists and recordings of sales calls. “This shows how easy it is to train people to duplicate your success,” said Martin.
When it comes to the company’s finances, don’t be the only person who can make sense of them day-to-day. Said Prosser, “Get your accounting online. If a potential buyer can’t figure out what you are doing, they won’t be willing to pay for it.”