Maximize the Value of Your Business
It’s anticipated that during the next two decades, retiring business owners will sell over twelve million businesses. So, if you are over the age of forty and your business is the main asset of your life’s work, it’s important to preserve your legacy. This is especially true when it comes to assets earned with sweat equity, as well as missed holidays and kids’ birthdays. It might be your only source of income, and your only real asset intended to provide you a source of income during your retirement. Therefore, you need to be proactive and take steps to preserve your business and maximize its value prior to the contemplated sale. Business succession planning is an often overlooked, yet critical factor in preserving your legacy.
Wise business owners who prepare their businesses for sale can expect a comfortable retirement. With a few simple steps, a business owner can substantially increase the value of his or her businesses upon sale. A seller shall learn to view his or her business through the eyes of a potential buyer to ensure success during business succession planning.
HOW TO MAXIMIZE THE VALUE OF YOUR BUSINESS
1. START WITH THE NUMBERS
The first step in business succession planning is to try to quantify your past business results by compiling revenues, costs, and profits for the last few years of operations. Be sure to follow proper accounting practices, including recording cash receipts, so your financial statements accurately show your business’s performance. Doing business in cash is often preferred by small business owners, but such practices will undermine the value of your business and expose to significant risks in the future.
Using the verified accounting number, make reasonable assumptions for the near future to create a reasonable performance forecast. Your financial information may also help you to find financing opportunities for the deal if the buyer needs a third party to finance the acquisition of your business. Any sophisticated third-party lender will require solid accounting and financing records before financing the acquisition of your business.
2. TELL YOUR STORY
Integrate your financial results into your marketing materials. Your current financial statements and performance forecast should showcase your business’s unique position and growth opportunities. Potential buyers are interested the most in the opportunities for higher sales and greater profitability. You may want to create a “teaser” one-page marking prospectus to hook a buyer’s attention before you share any financial information.
An interested buyer will be as excited to hear about your business as you are to tell about it. So, tell your potential buyer a clear and simple story in your marketing presentation. Your story, however, has to be credible and based on the actual performance and trends in the industry. (A few potential buyers will be excited to hear about the opportunities of doubling your business if your business’s actual performance shows meager growth or decline in business.)
Once you identify a potential buyer, make sure that you sign a non-disclosure agreement. Most buyers are well-familiar with such agreements and typically expect to be asked to sign them.
3. FIND THE RIGHT BUYER
You want to find a buyer who is in a position to buy and understand both your business and the market. But, most importantly, your buyer should see a prospect in your business. A person who doesn’t see growth or potential for success with the purchase of your business will not pay the best price. You want your business’ buyer to succeed after the acquisition.
4. MAKE THE DEAL
A sophisticated buyer will want a large earn-out – a portion of the purchase price that occurs after the sale, determined based on the agreed-upon milestones (such as sales or profit margins). Such a buyer will want to pay as little as possible at the closing. You, however, want a large portion of the purchase price to be paid at closing, with as little in earn-out as possible. So, engaging an outside professional broker or an experienced M&A attorney may help you to bridge the gap. In fact, you should never be afraid of asking for help from professionals at any point along the way. Lexern Law Group is happy to assist in business succession planning.
Preserve Your Legacy Today With a Business Succession Plan
Selling your business is a time of change in your life. The complexity of the details behind the process illustrate the value of working with experienced business succession lawyers like us. We take the time to understand your unique business journey and needs. Whether you have a business succession plan already or not, meeting with Lexern Law Group to learn about planning strategies can help preserve your legacy for generations to come.
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Disclaimer: This article is intended to serve as a general summary of the issues outlined therein. While this article may include general guidance, it is not intended as, nor is it a substitute for, a qualified legal advice. Your review or receipt of this article from Lexern Law Group, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG. The opinions expressed in this article are those of the authors of the article and does not reflect the opinion of the LLG.