Smart Money: Top 10 things business owners should know before they sell
RENO, Nev. — This year marks my 25th year as a business broker and M&A Intermediary. I have been fortunate enough to have an inside look at hundreds of different businesses during the best of times and the worst of times.
Some transactions come together and some don’t. As a business owner, here’s what you need to know.
- PLAN, PLAN, PLAN, PLAN, PLAN: Most people never plan for illnesses or retirement. In our business there is one thing that is certain, all businesses will either change hands or close. Knowing the value of your business early on, long before you need or want to sell, is essential. It is important to start seriously planning for an exit 3-5 years before you want to leave and update that plan annually.
- Get your books in order: Up to date financials are crucial. The importance of staying on top of profits is essential. Through proper planning, you can often see 2-3x return by cleaning up your books and maximize your final selling price.
- Clean up Inventory and sell outdated assets: Get rid of obsolete or excess inventory, most buyers won’t pay for it and stale inventory may negatively impact the sale of your business. Sell off obsolete or unused equipment.
- Get your contracts in order: If your company has contracts with your customers, make sure they are current, in writing and most importantly transferable. If you have exclusive agreements with suppliers or manufacturers, make sure they are current, written and transferable.
- Diversify: Large customer concentration will negatively affect the value of your business. If at all possible, try not to have any one customer account for more than 15 percent of sales.
- Stay on top of changes in your industry: There were many businesses that used to be highly profitable that have become nearly obsolete due to new technology. If you have a business that is affected by technology, it is critical to stay on top of trends, change with the times, diversify if necessary and know when to exit.
- Be careful not to overleverage your business: This can be a tricky task especially when you are in a growth pattern. The process of planning an exit strategy will help you identify what you will have left when you sell, which will allow you to plan appropriately.
- Assemble your team: When it does come time to sell, make sure you have the right advisors on board. More often than not, this team can pay for itself if assembled carefully. Interview brokers for the right fit for the size and type of your company. Make sure you have a transaction attorney experienced in business sales. Hire a CPA that is the best at purchase price allocation — this alone can save you a substantial amount of money on taxes. Get your financial advisor involved early also. The single best person to determine the current market value of your business is an active business broker. Make sure you are talking to a broker who is active in your local market. It makes a big difference.
- Know when to leave: Kenny Rogers said it best, “know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run.”
- Enjoy life: This is tough advice for most of us who were raised to be hard workers. Most business owners have never planned to retire and many of them never do. A quote from my dear 86-year-old friend and mentor — “Enjoy your life while you can. I wish I would have retired while I was healthy enough to have enjoyed myself.”
The bottom line is selling your business is one of the most important and complicated things you will ever do. Having the right team guide you through the process is essential.
Katrina Loftin-Winkel is Co-Founder/Managing Partner of Reno-based M&A Business Advisors. Visit mabusinessadvisors.com to learn more.
Heather Ashbridge, who started with Nevada State Development Corporation in 2008, previously served in several roles with the organization, including assistant vice president and loan officer. She is based in NSDC’s Reno office.