Steps To Take Today To Sell Your Business Tomorrow
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Selling your business is a complicated process that brings about a range of emotions. Your company is something you have poured your sweat and tears into, and letting go, no matter the price, is always bittersweet. That being said, it makes good sense to be prepared ahead of time for the day when you may want – or need – to walk away.
Staying proactive and preparing your business for sale before that day comes is paramount to the bottom line price you will receive. By focusing in on a few important items, you can immensely improve the attractiveness of your business to outside buyers. The idea is to take steps today so you are prepared to sell your business tomorrow.
- GET YOUR BOOKS IN ORDER
Having your financials in order and in accordance with Generally Accepted Accounting Principles (GAAP) should be done well in advance of selling. It allows for consistency when comparing to prior periods and competitors in your industry. This includes making sure that your financial statements are reliable through accurate and timely reporting.
- UNDERSTAND VALUATIONS
Deals in the contracting space are usually done based on the trailing 12-month EBITDA (Earnings Before income, Taxes, Depreciation and Amortization) times a multiple. The multiple is influenced by a multitude of factors including the size of the business, the market in which it operates, its service contract base and its key management team. For the typical contractor, an average multiple in today’s market conditions is three to six times EBITDA, which is a wide range. However, as we mentioned above, the higher the revenue number, the higher the multiple.
- WATCH YOUR EXPENSES
When a business is in its growth stage, costs tend to be on the higher side. However, when the business is in the mature stage, it’s important to control costs. Look to control your expenses and focus on removing any redundancies. A lean, cost-efficient operation is attractive to buyers.
- BUILD BENCH STRENGTH
When buyers are looking to acquire a business, they need to know that the business is not reliant on one person. When an owner has created a strong “bench” of key managers who are able to run the operation on their own, it allows the buyer to feel at ease with the transition of the business after the sale. While you usually want to eliminate redundancies, this is one area where the goal is for you, the owner, to become redundant yourself.
- BEEF UP SERVICE CONTRACTS
Buyers love the idea of a fence around a customer base that service contracts represent. This is recurring revenue that prospective buyers will be able to count on in the years ahead, which will allow them to focus on other growth efforts within the business. In addition, an expansive customer base that has low customer concentration, to the extent possible, is very appealing to buyers.
- CONSIDER ACQUISITIONS
The bottom line is that the higher the revenue number, the higher the multiple and the larger the valuation. By expanding through acquisitions that allow you to eliminate back office positions and take advantage of increased buying power, it is easy to see that one plus one is sometimes greater than two.
- DEVELOP A GROWTH PLAN
A feasible growth plan that will allow prospective buyers to exploit new opportunities is a very attractive piece of a business. Whether you’re considering expanding through acquisition, as mentioned above, or planning to grow organically by tapping into underdeveloped markets, buyers always want to know how they will build on their investment and what their next steps could be.
A passive, reactive approach where a business attempts to shore up these items as they are looking for prospective buyers will result in a lower valuation, since it’s already too late and the track record won’t be considered reliable. Acquisition activity in the contracting space has been heating up in the past few years, and by focusing on these factors and staying proactive, you’ll be ready when the opportunity presents itself to sell your business at the highest possible valuation.
- Steps To Take Today To Sell Your Business Tomorrow - October 16, 2018
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