So, you may be thinking that you’ve just started your business and obviously you have no plans to sell it in the near future. Retirement seems to be a long way off, doesn’t it? But don’t be so quick to dismiss the idea of selling your business… If not now, at some point in time you will be looking to pass your business into someone else’s hands. Yes, nobody lasts forever. The time when you should start planning for this, is not when you’re ready to sell.
The process of handing over the business or setting up its sale should start well in advance. As far as possible, you should try and keep your business in a ready-to-sell mode. Why, you might ask? The answer to that is, the minute you make the decision of selling your store, you may want to quit as soon as possible, due to illness or other circumstances. Even a well-groomed business may still take you a long time to find a buyer, so you can imagine the hassle for one that isn’t well groomed. One must also take into account that life is unpredictable. You could be faced by an unfortunate accident or a sudden health scare. Thus, it is always better to be prepared rather than sorry. Most buyers will expect at least three years’ worth of financials when they do their due diligence.
So, what does it mean to groom a business for sale? Basically, you’re business should be running well enough, for you to manage it without things getting too tight. The business should be so profitable and sound that anybody would jump at the chance of buying it. Here is a list of things to consider while getting your business ready for sale:
Bank all your takings. While I’m sure you do this, many business owners don’t. They always put a little cash in the back pocket. They think that the only loss they’re incurring is falling foul of the IRS. However, that’s not the only problem. If you take a dollar in cash, you take a dollar out of the profit. If you are selling your business for 5 times its profit, every dollar you have taken will cost you $5 off the selling price. If you have taken $10000 over a period of a year, then you have actually taken $50000 off the sale price of your business. The potential buyer will only believe what they see. Their financial advisor will tell them to ignore any claims of additional income that is not reported in the financials.
Review Your Overhead. Are there expenditures that shouldn’t be there? It may be legitimate to meet some personal expenses through the accounts. But if you incurred high expenses on travel that isn’t important for business, for example, it may give the impression that the business isn’t really that sound. This type of activity that you may undertake to minimize taxes isn’t what you should be doing if you want to make your business saleable.
Reduce your inventory to an optimum level. What do I mean by optimum? It means the level of products that you actually NEED to keep your business up and running, not what you have. Most retail jewelry businesses are over-stocked, and that brings additional costs that include costs of handling, debt servicing and staff time. And if you think these are petty expenses, you are mistaken. $100,000 in surplus products can shoot up you business costs much more than you think. Get this under control, and your financials will surely look healthier. Remember every dollar of inventory you carry is an additional dollar you will be wanting on the sale price to recover your initial investment, however the buyer won’t necessarily see it this way. If you are inefficient and carry too much inventory they won’t want to pay you for it.
These are a few things you must consider when planning to sell a business. It is strongly recommended that you seek the help of a financial adviser or CPA before you take any further steps.
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