by Debi Enders
Whether your business is just getting started or you are nearing retirement age, it’s never too soon to look ahead to the day you want to cash out. Here are four ways to get prepared.
1. Create a succession plan. Every business owner needs an exit strategy. Many consider transferring the business to an heir, co-owner, or key employee. A business succession plan helps streamline the process. Such a plan requires identifying ideal successor(s) and determining how you will complete the transfer well in advance of the actual event. Addressing logistical and financial decisions early on makes for smoother transitions later. Take the time to network with other business owners to get a feel for how they are planning.
2. Polish strengths and repair weaknesses. If you are lacking a logical successor, then you will likely need to look outside your company for potential buyers. To increase your business’s appeal, focus on strengths that interest potential buyers: differentiated products or services, strong branding, a lean business structure, orderly financial records, and a growing customer base. Your company’s strengths should always be top-of-mind but are especially important as you consider a sale.
3. Plan ahead. To command the best price, business brokers recommend taking at least two years to strengthen your financials and prepare your business for sale. Avoid waiting until revenues are dropping, forcing you to conduct a fire sale. Customer-behavior and business-analytics tools can assist you in determining the right time to sell.
4. Know your worth. Setting an unrealistically high price tag on a business discourages buyers, while underpricing may suggest you are burned out, short on time, or a victim of bad advice. Do your homework and collaborate with experts when setting your sales price, aiming for one that attracts serious prospects who might expand on your vision. Visit with your banker for tips to better understand your company’s worth. Not only are bankers good resources as you run your business, but also when you are planning for retirement.
The bottom line: Advanced planning can make your small business easier to sell. You can’t predict when that time might come, so it’s smart to start preparing now.
Debi Enders (firstname.lastname@example.org) is vice president, small business banking at Commerce Bank.