You Should Prepare to Sell your Business
Having a business is the life of an entrepreneur, working from sunrise to sunset six or seven days a week. If you are a business owner, you know that it becomes “your baby” in a sense and takes up almost all your waking hours, but that’s okay because you love what you do. You may not be looking to exit the business or sell anytime soon, but we make the argument that you should always be ready to sell. Below we break down six reasons why you should always prepare your business for sale even if you do not intend on selling.
CONTINGENCY PLANS
“Expect the unexpected”. You may have heard this quote before. It is a good idea to have a plan in place in case of an emergency. To plan for the “unexpected,” businesses often have a “contingency plan” that lays out how the business will operate when there is a sudden emergency.
But why should you want one? It is best to illustrate this one with an example. You consider yourself well off, financially, mentally, physically, and you have a long-term goal for yourself and your family. You have owned your own self-made successful business for the past ten years and have recently turned a huge profit and are looking to expand. The stars are the limit for your future…until
One day at work you went to take something off the top shelf. It was heavier than you realized and pulled a muscle taking it down. This work-related industry will keep you out for some time. Now what happens?
While taking care of your physical health, the doctors said you will be out of work for some time to heal. What happens to your business? That is where the plan comes into place. Does that plan include who will operate your business in your absence? Are your workers knowledgeable of your job as the manager to continue without you? If the answer is no to both questions, you may have to consider your third option, selling, if your long-term health will have a negative impact on the business or to make sure the life insurance money is used correctly.
Another example that could be used to demonstrate this point is simply that your goals and plans change. You may have been in your industry for a long time and see an opportunity to start a new business that will take up much of your time. It could be possible that your kids are grown and moved away, and you want to move closer to them and spend more time with them. Again, plans change, and you do not want to have your business getting in the way of your future goals beyond it, so it is always a good idea to have this plan in place in case you want or must leave it immediately.
IN THE CASE OF UNSOLICITED OFFERS
“Know your worth” is a common phrase used in life and in the business world. It is always a good idea to have a firm understanding on the value of your day-to-day operations and assets. You know you have something you love and turns a profit to the point where you can hire others and live comfortably. To indicate a strong business, it has a good location, a management team who has a dynamic understanding of the business and industry has stayed clear of regulation violations and has plans for growth. But what would you do in the instance that someone just offers to buy your business? There are a few options here. The plain and simple one, reject their offer regardless of the price tag but let’s explore some of the other ones.
You receive a call one day. Someone in your industry is looking to expand and they were interested in possibly purchasing your business. He gives you a price he is willing to pay to buy out all your assets and operations. In case of a call like this, it is always good to “know your worth” by having a business valuation completed. Knowing your business’s worth gives you a starting place at the negotiation table. If there is a big gap between your value in the valuation and in the buyer’s, you can justify why you are asking more and hopefully get them to come up closer to your price.
There is also the small chance that they give you an offer that “blows you out of the water” and you just cannot refuse so you ultimately decide to sell. If the negotiations favored you, the buyer would not know the bottom dollar you will take, so they may place a higher value on your business than you did. If this is the case “Knowing your worth” is crucial because you can walk away after the deal feeling like you were paid what you are worth.
Whether or not you were thrilled to receive the unsolicited offer, it is always important to be prepared for one, because who knows? You may have the opportunity to leave quicker than you anticipated and try something new.
ALLOWS FOR THE GROWTH OF THE BUSINESS
Having a plan, a sense of direction, and a long-term goal is never a bad idea. When you know the direction the business is heading, you can make decisions to accomplish your goals. By taking the time to critically analyze your company’s current situation, you will be able to identify your problems and put the business on track to solve them.
When preparing a business to be ready for sale, someone will scrutinize every aspect of it to place value. Doing that to your own business without the intent of selling it will allow you to understand your current position in the market. It will also help you identify possible new ways to take your business whether it be another industry, location, or product line. Being able to identify these things is important because these potential opportunities are what a buyer can look at to grow the business after it is sold. When a business has these opportunities, they are more attractive to buyers and can raise your asking price in the instance that you do want to sell. If you are not intending to sell, identifying these opportunities can allow you to sell.
A PREPARED BUSINESS IS A PROFITABLE BUSINESS
Understanding your market share and clientele plays a vital role in your ability to profit. It is important to always have your plans such as the market plan, contingency plan, estate plan, and succession plan produced and regularly updated to best reflect the current environment.
An example could best illustrate why preparing could save your business money. In the instance that you pass away, the government could charge your estate 40% estate taxes upon your death. (Investopedia, 2022) This would force your heirs to possibly sell off your estate or business to pay the tax. Having an estate plan where your assets are distributed to a trust or your beneficiaries upon death would save your family from paying this tax.
Another example of this is with developing your strategic transition plan. If there is a plan for succession, whoever inherits or buys your business will have a shorter learning curve to teach themselves the skills necessary to operate with you. Part of the succession plan could include a way to train your employees to take over for you while you were still there, so it could cut down on the cost of training. This will allow your employees to take pride in their work and handle increased responsibility.
In essence, having a long-term plan in place allows your company to have guidance in executing the company’s mission. When everyone has a clear understanding of their role in the organization, they can solve problems that may arise in an effective and efficient manner. Being able to prepare for emergencies or the future is vital because there will be a quicker turnaround toward the solution and an increase in profitability.
ALLOWS FOR FLEXIBILITY
One of the most important reasons why you should always be ready to sell is flexibility. We touched upon it earlier when discussing the contingency plan, but it is a key characteristic of successful business owners and entrepreneurs.
Starting a business is not easy and requires lots of work. Life can change in the blink of an eye, and you want to be ready for that. You may not have any intention of getting out of your business anytime soon, but as discussed above, you never know when the opportunity to try something new may come up. Having the ability to just get up and leave whenever you want takes planning and is not a short process, but once the planning is in place, it becomes a lot easier to be flexible since you are just adjusting the plan instead of creating it.
Your life can change in the blink of an eye. Having flexibility allows you to adapt to whatever might arise. New opportunities to start a new business or move closer to family or friends may come about so having the ability to adjust a plan rather than create it at a moment’s notice will allow for a smoother transition of ownership.
CONCLUSION
Whether or not you decide to sell your business and how to run it is up to you. We would highly encourage you if you were not already to create plans to help your business thrive. When you are organized, it becomes a lot easier to make a profit and a lot easier to have flexibility and certainty about your future. You should always be ready to take on an unexpected challenge and plan for the worst possible scenarios. By taking all these measures, your business should increase in value and be easier and less expensive to sell. At Keystone Business Ventures, we offer succession planning to help small business owners transition to new ownership and we can assist in the creation of contingency plans to help answer the “what ifs.” If you are interested in creating plans to help your business thrive, Contact Us today. We will happily take your call and schedule an appointment to see how we can help you live a more flexible lifestyle.