Wenatchee Office located at 238 Olds Station Road, Wenatchee. By appointment call 509-888-7252 or email jim.fletcher@wsbdc.org

Tuesday, May 24, 2016

Planning to Sell Your Business

There were obvious advantages to buying a business, but there were also the usual concerns. Did the sale price seem reasonable? How should the purchase be structured? The buyers had some money to invest, but how much would they need to borrow? What could they expect in revenue over the next year, and what, exactly would their expenses be...
Every year hundreds of businesses owners try to make a successful exit by selling their business. Of all who try, only 2 in 10 owners are in the best position to find qualified buyers and receive a full offer.  Another 3 in 10 will close receiving a liquidation value if anything.  That means half of all who want to sell could get a better deal by preparing to answer the buyers questions.
The goal of exit planning is to help that 50% in the middle get a better outcome.   Planning starts with a review of existing financials, reviewing the business operations to identify improvements.  Actions are implemented over the next two to three years that improve the business value when it’s time to sell. 

One reason a business sale is difficult to finance is the seller does not provide a good set of financials that prove the business value to a lender.  Even well qualified buyers will have difficult in financing if the seller's financials don't pass the lenders review.  Moreover, the recession took its toll on buyers who now have less equity to invest. Combined with too many sellers its a buyers market, businesses with the best profitability have the advantage.
Most efforts to sell a business fail to gain good value because the owner remains an entrepreneur and does not prepare the business to attract a good buyer. Preparing to sell means creating a business that buyers will want. A seller needs to show a strong profitability,  competitive edge to stay profitable, sustainability to survive economic downturns, scalability so the business grows, and a business culture so good employees stay. 

Planning to sell a business is a systematic process with three goals.
  • Maximize business value to the seller and qualify for buyer financing.
  • Maximize the number of possible qualified buyers.
  • Minimize cost and lost time looking for buyers.
A through process helps identify transition opportunities, business strengths and weaknesses, risks to a successful sale, needs of both the business and the owner, now and for their life after business, keeping the businesses successful and local.

To obtain a successful sale takes time and effort to prepare.  Consider a three year strategy which happens to be the time lenders look back on the sellers financials. Thus, three years of good performance will improve the opportunities for a successful sale.