According to Biz Buy Sell’s recent insight report, business sales have grown by nearly 20% since 2020. As motivated Baby Boomers retire in record numbers, the demand for thriving businesses and the number of buyers entering the market are poised for another steep jump over the next decade. Ready to learn how to sell your business in 5 simple steps?
If you’re considering selling or want to be ready in case the perfect opportunity lands in your lap in the next 10 years, implement these five steps now to ensure when you’re ready for a successful and profitable exit, your business will be too.
1. Tidy Up Your Financials
For most entrepreneurs, meticulously squaring up their finances for others to take a hard look at is one of the most headache-inducing tasks imaginable. Unfortunately, it’s also one of the most important. Any interested buyer will ask for your due diligence before seriously considering making an offer.
Consider dotting the following financial I’s and crossing T’s before moving on to the next step:
- Create a balance sheet or profit and loss (P&L) statement.
- Check your sheet or statement against your credit card and bank statements to ensure everything is accounted for.
- Reconcile all accounts payable and receivable so no invoice goes unaccounted for.
- If you pay employees or contractors, make sure you have proper and up-to-date documentation for each one.
- Keep your business and personal finances separate to protect business liabilities from becoming personal liabilities.
- Check all assets and expenses listed to ensure they’re still a purposeful part of your business. Eliminate any excess.
2. Prepare Your Exit Strategy SOONER Rather Than Later
Small business applications in the United States have increased by 74% since 2010. In 2021 alone, applications increased by over 24%. And yet the rate of successful businesses drops from 80% in the first year to 25% by year 15.
If we follow the data, we clearly see that – increasing year-over-year – millions of Americans want to become small business owners, and if you’re interested in selling yours at some point in the future, you need to strategically plan when the best time is to exit.
Too soon, your business may not be valued as high as you’d like. Too late, and your business may have fizzled out and is ready to close any day now.
To learn more about strategically preparing your business for a highly profitable and successful exit without paying thousands to a broker or making common, costly mistakes, I invite you to take our free on-demand Masterclass.
3. Grow Your Company and Scale Your Revenue
Grow your business today as if you’ll own it forever, but prepare it as if you’ll sell it tomorrow. One of the biggest challenges small businesses face is overdependence on any single customer or account. When a single customer or account consists of more than 20% of your total revenue, it’s called high customer concentration and screams, “Too risky!” to potential investors or buyers.
If you’re too dependent on any one customer, your business will be highly unstable. Just picture one customer leaving; how would this affect your profitability? Try to work your customer concentration down to a point where your largest customer represents no more than 15 to 20% of your revenue so you’ll have a more valuable company when it comes time to sell. The easiest way to do this is to implement an easily scalable recurring revenue stream.
4. Establish a Value So You Can Calculate a Selling Price
Although there are several methods for valuing a small business, the simplest is called EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization. It serves as a metric for selling a business. It helps the seller and buyer determine the business’s standard value. To calculate EBITDA, use this formula:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
However, this is merely the first step. It is a key part of the overall company valuation, but it does not give the full picture of a company’s financial health. To learn more about accurately valuing your business and establishing the right selling price, I invite you to join the ENDGAME program.
5. Find Qualified Buyers
Sellers often envision a sale to a strategic buyer, but they seldom know where to start.
If you sell to a family member or key employee, looking for potential buyers will be easy. However, remember that being an entrepreneur isn’t for everyone. Ask yourself if this person demonstrated strong management skills and the ability to earn employees’ trust and respect, regardless of their last name. Same for key employees. Some employees, although interested, may not be ready to take on the responsibility or financial risk.
You could also start a bidding war by reaching out to competitors, industry leaders, and top customers allows you to put them in competition with each other which may provide you with multiple offers for your business.
Finally, every industry has pockets of highly acquisitive buyers. If you’re working with a broker, they’ll be aware of relevant market activity. However, if you’re doing the research yourself, contact lawyers and accountant firms, bankers, and brokers to let them know you are looking for a potential buyer. They may already have clients looking to buy in your industry.
Lastly – But Most Importantly – Get Support
If you’re wondering –
“What are the steps to selling my business? For that matter – what’s the first step?” “Who’s going to buy my business?”
“How do I get the right price?”
“What can I expect to pay in lawyer fees?”
“How can I avoid being undervalued?”
“Can I scale now to increase the value?”
I invite you to join The ENDGAME Program. Selling your business is one of the most important transactions you’ll ever make.
This program empowers business owners in any stage of growth to make the process easy, fulfilling, and successful.
Plus, for a very limited time, I’m offering the entire program for a savings of $500.
If you own a business you hope to sell for a massive profit someday; then it’s time to shift your BIG dream of being a successful entrepreneur to enjoying a highly profitable exit (And you know what?…
With The ENDGAME Program, it’s you don’t have to waste thousands of dollars on brokerage commissions or stay stuck wondering the best way to move forward).