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Are you no fun? Don’t have the old drive? Couldn’t toss a football if you tried?  It may not be age. Talk to your attorney. It may just be time to sell.   To get the best price for your business, remember four things:

  • Bigger is better, but not necessarily for the obvious reasons.
  • Market to the right buyer.
  • Make sure your financials show consistent revenue growth, and
  • Show potential buyers that you are not overly reliant on a small core of customers, suppliers or employees.

The actual marketing and sale of your business may take anywhere from nine months to a year, but the planning process should begin three to five years before that.  This should give you the time to position your company to get the best possible price.

The Best Price for Your Business May Depend on Size

The bigger the business, the higher the price.  At the outset, though. this looks like a return on investment problem.  A bigger business takes more investment to produce, so where’s the gain?  Higher profit is the real goal, not just higher price.

The multiplier comes with the internal systems that larger businesses have necessarily had to develop to function.  Potential buyers will value your IT system, your customer service staff, your online presence or the fact that key staff will probably stay even after the sale because of a valuable benefit structure.  Larger businesses are also generally less dependent on the skills and presence of the business founder.

Sell to a Strategic Buyer

Not all buyers will pay the same price, and the interest of the buyer may not be immediately obvious. It may be about geography, distribution channel or complementary products and services.  To get the best price for your business, identify its greatest assets.  This may also affect the issue of whether you should structure the transaction as a stock deal, rather than an asset sale.  It would be ideal to have competing offers at the time the sale is actually negotiated.

Have Three Years of Consistent Revenue Growth

Your buyer will look at your financial statements for consistent revenue growth for at least three years. To get the best price for your business, make sure that you can explain any outlying years, whether especially bad or especially good.  Buyers will look at your company’s P/E ratio, or the share price divided by its earnings per share, before even considering trends within the industry and the economy in general.  If you have simply increased earnings by cutting costs rather than increasing revenue, this is not a good indicator of the potential for future growth, and it will affect price.

Plan for a Diverse Customer and Supplier Base

Buyers view customer concentrations as risky.  If any one customer accounts for more than 8% of your sales, your business may appear to be too exposed. The same general principle applies to supplier and employee concentrations as well, though.  Since you have several years to position your business for sale, you should address the issue of diversifying in all three of these areas.

Perhaps you had always planned to sell your business so that you could move onto the next venture,  the thought just crossed your mind or your plan is to leave it to your favorite nephew.  Whatever the reason, addressing these four areas will make the business more valuable and will make the transition more satisfying to all involved.

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