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Selling your business can be a cumbersome task. Where do you even start?
Most business owners are experienced at running a business, often very successfully. However, selling a business is usually not something most business owners have a great deal of experience with, especially if this is their first sale.
Most business owners know about valuation and exit scenarios and have heard stories from others about their experiences selling their business – both positive and negative. But there are so many terms, details, possible scenarios, and implications involved in any merger and acquisition (M&A) transaction that it’s next to impossible for most business owners to be experts in this area.
Rather than getting caught up in all sorts of lingo and potential details, it’s best to understand that any sort of M&A transaction is a nebulous process – the value of the deal is as acceptable as whatever both parties involved agree it is. Instead focus on a couple of key areas that you, as the business owner, can control.
There are three key items you can control before starting the process.
You can start as early as day one of your business or a few years before your exit timing. Generally, an acquirer will want to see three years of financials and business trends, so make sure to give yourself plenty of time to showcase the quality of your business and show positive trends.
By planning early, you will also be able to react and adjust to macroeconomic or industry trends and time your sale to maximize its market value.
Most business owners want to grow a business with the end goal of selling it or passing it on so it’s important to consider your goals when preparing to sell your business. Many seek maximum value. Just as importantly, many are concerned with leaving a legacy. Other significant items to consider are timing of payment (upfront vs over time), guaranteed vs milestone payments, transition time, and control.
Establishing goals increases the likelihood of a successful outcome for you as the seller. You’ve invested the time, money, and resources to grow the business, so keep your goals in mind as you navigate your way through the selling process.
How are you going to make sure that your business sells for the most value or that you have the leverage to force other important terms (e.g cultural ones)?
You can do so by having as close to perfect numbers as possible. Of course, that sounds cliché to say since TGG is an accounting firm, but ultimately that is how people will judge your business. On the flip side, that is where buyers will focus to reduce the value of the deal.
The numbers tell the story of your business. It’s just as important that the numbers look great as it is they present well.
You need to know the status of your business when you’re going into a transaction so that you know what to expect and can walk away with the best possible outcome. People who buy your business are going to evaluate it almost solely on the numbers. Why wouldn’t you invest the time that it takes to make sure they are absolutely correct?
Ensuring a successful sale of your business starts with you. Most mergers and acquisitions fail because business owners miss planning for the culture of the business and unfortunately statistics show that the majority of business owners are unhappy with the sale of their business three years later. By starting early, knowing your goals, targeting your buyer, and ensuring you have accurate numbers, you can avoid coming out of a transaction disappointed with the outcome.
So, take a look at your numbers and know that accurate accounting requires planning and organization. Your numbers need to be accurate, clear, and unassailable. Don’t underestimate this – accurate accounting will pay for itself many times over.
Remember, the numbers tell the story of your business.
Still unsure of where to start? We’re here to help. Schedule a consultation with TGG .
This post was reviewed by our team of accounting and financial experts. TGG’s mission is to make business owners’ lives better through excellent financial management. We strive to provide the most up-to-date and objective information on accounting-related topics so our readers can make informed decisions based on factual content. All posts undergo a review process with at least one member of our Leadership Team to ensure accuracy.
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