To successfully sell a business, strategy is paramount. This includes business valuation, sales portfolio management, and a well-planned sales process. If your business is your most valuable asset, take the selling process as seriously and responsibly as how it was started. If you are considering selling your business in the future, this comprehensive guide can explain how a professional business consultant can help you to make an informed decision, and maximize the sale price:
Step 1: Valuation
The process of valuation is not as simple as you might think. In many cases, you need to engage a business consultant (a simple business transaction may choose an intermediary instead) to determine the true value of the business. Moreover, valuation from a third-party company will make it more credible.
Compared with the traditional accounting method of assessing value based on past performance, business consultants operate differently with a more comprehensive and flexible valuation process. Business consultants will consider all aspects from inventory to sales, debt, and other business assets, in order to identify sales opportunities and set realistic prices.
Generally speaking, small businesses are worth one to three times their net cash flow, depending on their market segment position, market demand, financial situation, core value, and room for growth, among other things. Cash flow is a priority for many small businesses, and tangible assets are likely to be only a fraction of the value of their business, and limited to the business profits generated. It’s important to note that cash flow alone will not satisfy the savvy business buyer. The owner of the business needs to explain to potential buyers how it can still grow without the key person in charge.
The majority (80%) of a typical entrepreneur’s net worth is tied to their business. Needless to say, your livelihood is heavily tied to the selling price of your company.
Step 2: Preparation of Financial Statements
In today’s economic environment, buyers are looking for businesses that are not only profitable but also have long-term sustainability. A savvy buyer would entrust a business consultant like AGPS to perform due-diligence checking before making an offer. Likewise, as a seller, you can be prepared for all aspects of your business-based accrual finances, from equipment to leases, with the advice of a business consultant.
An accountant or business consultant like AGPS who assist you in the deal will first review financial statements dating back 3 to 5 years. We normally create a list of inventory and equipment for the seller, including any intellectual property and intangible assets. We also organize information about how the company operates to provide potential buyers with useful details to help them better understand business processes and handover operations. If you need to sell your business, you will be amazed at the amount of time and work these processes can save you.
Step 3: Improve Sales and Revenue Ratios
Most buyers will look at sales and gross profit records to determine the viability of a business. They want the company’s sales growth to be at least 30 percent, as buyers want to acquire businesses that are thriving rather than merely surviving. Savvy buyers will also ask if existing contracts are transferable. They’ll also assess the future potential of your revenue stream, identifying recurring revenue opportunities that indicate continued sales for years to come. As a result, many buyers take into account the existing customer base when negotiating. To make your business more attractive to buyers, AGPS provides practical advice, such as boosting sales and diversifying your customer base. Multiple revenue streams and a strong management team will all help increase the value of your business.
Step 4: Prepare for the Future
If an entrepreneur wants to exit their business, we would recommend starting to plan a year or two in advance. Getting a professional business consultant in advance will better prepare you for selling the business in the future: they can help improving your sales, financial records, customer base, and more.
Statistics show that only 20-30% of businesses actually sell when they’re well prepared, so timing is crucial. Buyers will not miss the chance of a growing and profitable business. Don’t wait until disaster strikes to sell your business, as it will drain your company’s value causing potentially significant losses. Simply put, the best time to sell a business is when it is financially healthy.
Of course, one of the worst mistakes to make when doing business is not having an exit strategy. If you want to get the most value for your business, develop an exit strategy before you sell, or contact us for more information.
Step 5: Vetting of Potential Buyers
There are many things you need to consider before entering a deal with a potential buyer, these are the type of questions you need answers of:
Is the buyer financially prepared? Prospective buyers are required to submit financial proof that they have the resources and means to make a rental and utility deposits, including working capital for the first six months to fund operations.
Is the buyer able to run the business and does he/she have business experience? While inexperience should not be a disqualifying factor, most qualified buyers should be experts in the industry.
Does the buyer have a reasonable timeline? Ask potential buyers if they’re ready to buy right away, or if they’re months away from an offer.
These steps don’t have to be complicated, but if left uninvestigated, it will cost you a lot of valuable time and resources negotiating with unqualified buyers, adding to the burden and increasing the chance of information leaks, which can affect the final the sale price.
Step 6: Start Reaching Out Now
The purpose of a business consultant is to get the most value out of your business and find you the ideal buyer. We provide services including:
- Business assessment, negotiation and due diligence. Communicate with buyers and sellers separately to ensure the smooth completion of the transaction.
- Marketing and finding potential buyers, including listing your business on various marketplaces to increase potential buyers and get the best price.
- Helping buyers access funding by leveraging a network of large financial institutions and private lenders that work with them.
- Negotiating favourable transaction terms for the sale and purchase.
- Recommending potential buyers and ensure the confidentiality of the process.
One of the hardest parts of the buying and selling process is doing your due diligence (as it is why most deals fail). More than 50% of transactions fail because they are not investigated carefully. A good business consultant will keep you on track and guide you throughout the process, while you can focus on running your business.
If you are considering selling a business, our consultant team can guide you through the process. Being an objective third-party consultant, we are able to suggest a reasonable pricing strategy taking into account the business potential and market trends. Our services include: