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According to data from the Small Business Administration, more than half of the small business owners in the U.S. are over the age of 50. Because of this, many of us are starting to think about the future and possibly one day selling our businesses. This is why research site BizBuySell reported that the business-for-sale marketplace grew almost 5% last year, a gain of 19% since 2020 and the first half of 2023 has already “experienced strong year-over-year gains.”
There are many reasons I’m expecting to see continued growth in the number of small business owners looking to exit their companies over the next few years. Our population is aging and much of the “boomer” generation is at retirement age. Capital gains and estate tax rates — for now, at least — remain at historic lows. Stock market volatility is driving some people to seek more stable, controllable returns for their money. And a growing number of millennials have now gained enough business experience to want to venture out on their own, and buying an existing business rather than starting from scratch is an attractive option.
If some or all of these factors are making you think it could be time to sell your business, then know that this won’t occur overnight. You will need to plan and take these six actions before dipping your toes into the market.
Re-visit your buy-sell agreement
If you have other equity partners, I’m hoping you have some type of partnership or buy-sell agreement which indicates the process that will need to be followed if one or more partners exit a business — be it voluntary or not. This agreement addresses issues like valuation, insurance, taxes, transfer of shares and death or sickness of a partner. If you and your partner(s) have agreed to sell your business sometime in the future, then it’s critical to update this agreement so that everyone’s on the same page as to how the transaction will go. No buyer wants to walk into a messy divorce.
Pay for a valuation now
Humans always think that we’re more important than we really are. And business owners always think that our businesses are worth more than they really are. Before entering into the buy/sell market, it’s important to get a reality check. To do this, I recommend hiring an independent appraiser (ask your accountant or attorney or search online) and letting a professional without an agenda tell you just how much your company may be worth. Your appraiser should have a CBA (Certified Business Appraiser) or ASA (Accredited Senior Appraiser) qualification. Getting an appraisal done earlier will be a reality check and allow you to zero in on the areas of your business that need to be fixed in order to increase your company’s value. That way you can go into the market with a price for which you have confidence.
Do a document check
Take the time now to scan every important (and current) document, contract, agreement, tax return (from the past three years, at least) and written record that your company has. This includes any and all paperwork that supports your employee, real estate, insurance, intellectual property, contractor, leases, loans, supplies, sales and government obligations. Organize and save these documents online where they can be shared with permission because you will absolutely be asked to provide them. Don’t make this a last-minute fire drill.
Bring in a technology expert
Technology has become a significant factor in the sale of a business. We live in a big data world and buyers are looking to purchase information that they can use. They also want to make sure that a target’s systems are up-to-date and secure so that big investments and changes can be minimized after the sale of a business. To do this, you’ll need to bring in an outside technology firm to evaluate your network, hardware, security, software, and databases and give you an honest report on just how out-of-date you are and what investment is required to bring your system into (at least) the 19th century.
Visit Home Depot
When selling your business, you’re going to be visited by many outsiders. Perception is important and if a potential buyer drives a car over potholes in your lot, trips over cracks on your sidewalk and has to wipe away drips from a leaky ceiling that’s going to have an impact on what they think of you as an owner and the valuation that they would apply to your business. Like any homeowner looking to sell their house privately, you’ll need to spruce up your physical location to make it look attractive and up to date.
Finally, assemble your team
You are not going to successfully sell your business at the best value possible without a team effort. Now is the time to think about and assemble your advisory team to help you through this transaction. All important, in my opinion, is to have a great financial person — a certified public accountant or similar — to work alongside you as, in the end, this transaction is all about the numbers and you’ll need someone with a financial mind and good communication skills to help you drive it. You’ll also need a good attorney to review and create agreements. There may be other experts on the periphery — like a specialized tax person or an insurance advisor. I also strongly recommend using a business broker and making that broker part of your team as well. Brokers serve a vital function — they are experienced in buying and selling companies and can use that experience to move a transaction forward, despite the inevitable obstacles that will be faced.
These are the six things you should be doing before you even put your business up for sale. Notice anything? How about this: We should all be doing these things regardless of whether we plan to sell our businesses, right? Our job as business owners is to maximize the value of our companies so that they continue to grow and succeed. That’s what a potential buyer thinks. We should be thinking the same.