You built a successful business and now are thinking about cashing out to enjoy your retirement or start a new venture. Business owners who want to sell their businesses find themselves grappling with the following common inquiries:
- How much is my business worth?
- How do I maximize my business’s market value?
- How do I find a buyer?
- What taxes will I owe following the sale of my business?
- How do I sell my business without my customers and employees finding out?
While these questions are undoubtedly essential, there’s a paramount query that deserves your utmost attention: How do I identify the right business broker to facilitate the sale of my business? This pivotal decision could be the linchpin to ensuring the seamless transition you envision, and finding the right business broker to partner with in this journey is the key to unlocking your business’s full potential on the market.
Business brokers act as third-party intermediaries who represent business owners in the sale of their businesses. A professional business broker guides their clients (business owners) through the process of selling their business from the initial meeting through closing.
When you work with an experienced business broker, you will benefit from the insights they have obtained from conducting dozens of previous sales while also gaining access to a larger pool of potential buyers. With that being said, it is important to ask, “Am I selecting with the right broker to sell my business?”
Business Value
When choosing a broker, you want someone who will be in your corner and who will go the extra mile to get you the best price possible for your business.
This is where business valuation comes into play. Valuation is one of the most critical roles your business broker will play in the sale of your business. If your valuation is unrealistically high, your business will sit on the market for a long time and many businesses priced unrealistically high never sell. Likewise, if your valuation is too low, you will end up selling your business for less than its true value.
An experienced Business Broker will use professional business valuation software with access to a comparable sales database to calculate the market value of your business. At Pacific Business Sales we use Peercomps for our market value analysis. Peercomps uses comparable sales data from closed SBA financed transactions and the appraisals for those transactions. We have found the Peercomps valuation software and comps database to be the most accurate available valuation software for small to mid-sized businesses. Pacific Business Sales offers a Free Market Value Analysis to our prospective clients.
How a Business Broker can Help You Develop an Exit Strategy to Maximize the Value of Your Business
Developing an Exit Strategy is something every business owner should seriously consider and make a priority. An Exit Strategy will increase the value of your business in the long term and make your business easier to run in the shorter term. Even if the future sale of your business seems in the distant future, preparing an Exit Strategy now will increase the value of your business as well as improve your overall operations and profitably.
Developing an Exit Strategy may seem like a complicated project, and perhaps you don’t know where to start, but it doesn’t have to over overly complex. Below we have an outline of the basic elements of an Exit Strategy. If the thought of creating an Exit Strategy is still something you can’t see yourself doing or if you need guidance from our firm, we can consult with you to help you through the process or refer you to one of the business coaches we work closely with.
Through our experience of selling hundreds of businesses throughout Orange County and California, we have gained a great deal of insight, experience, and understanding about what it takes to successfully sell a business. The businesses we have sold are in diverse industries yet the companies that sold for premiums, and quickly, had several things in common we discuss below.
- Good Financial Performance
- Good Financial Records
- Owner Dependency is minimal or a path to replace the owner.
- Infrastructure
- Customer Concentration
Things to Address in your Exit Strategy
Here’s a 7-step outline of what your Exit Strategy should include. It’s up to you how much detail you want to go into for each item, but each should be addressed. We outlined the basic elements of an Exit Strategy below, our blog “How to Develop an Exit Strategy to Sell Your Business” goes into more detail for each item.
1. Owner Dependency
Create a plan to reduce and minimize the dependency on you for day-to-day operations.
2. Staff
Develop your staff to take on day-to-day operational responsibilities and cross-train staff members if possible. Develop supervisors and managers if possible.
3. Infrastructure
Develop systems and procedures for your day-to-day operations. Review how your Orange County business operates and improve your systems.
4. Customer Concentration
If your business has high customer concentration work toward diversifying your customer base through geographic expansion, customer growth, or expanded service offerings. In some niche businesses this is not possible and in these instances work toward cementing these relationships as much as possible.
5. Financial Statements and Tax Returns
Review your financial statements and tax returns with your CPA and ensure that the owner’s salary is clearly identified as well as all owner’s benefits/expenses. After an offer is accepted, you will have to prove these expenses to the prospective buyer. It is a much easier process if the owner’s salary and expenses are easily identified and tracked.
6. Tax Strategy to Minimize Taxes on the Bus
You should meet with your CPA to plan for taxes on the eventual sale of your Orange County or other area businesses. By developing a tax strategy, you can realize substantial savings on your taxes. There are several tax strategies to reduce and defer taxes on the sale of your business. If your tax advisor is not familiar with these, contact us and we can refer you to a CPA that specializes in tax planning.
7. Performance
The financial performance of your company, namely, Net Profit, Discretionary Earnings, Sales, and growth are the biggest business value drivers. Broadly speaking, every dollar you add to your bottom line adds two to three dollars in business value. For example, if you increase your bottom line by $50,000 your business value will increase by $100,000 to $150,000.
Pacific Business Sales is a Broker You Can Trust
Pacific Business Sales, is committed to developing a sales strategy that fits your individual business and maximizes your profits. When you begin thinking it is the right time to hire a business broker to sell my business, you need more than just marketing and a sales platform.
Pacific Business Sales will be there every step of the way to explain and guide you through the process, while also working proactively to find an ideal buyer for your business.
Get in touch with us to get your Free Market Value Analysis!
