If you are ready to sell your business, and your business is in Nashville, you are in luck. Music City is a hot market, and there is a virtually endless line of buyers ready to invest in Davidson and surrounding counties. But before you stick a “for sale” sign in the window, there are a few things to consider.
Why do you want to sell?
Obviously, you want to know what your business is worth, and money is likely a driving factor in your decision to sell your business. But it should not be the only motivator. The real question is, “Do I really want to sell?” If you are truly ready to hand the reins over to someone else, you will take the time to understand the market. You will sidestep your personal feelings toward the company that you built with your own two hands to get a clear idea of what it is actually worth. Once you have this mindset, you are ready to take the first steps.
Your financial records are the first thing you need to put your hands on before you sell your business. Nashville investors are interested in your bottom line, and that means numbers. All of them. Hopefully, you – or your accountant – are completely organized and can easily access your sales figures, profit and loss statements, tax returns, and accounts receivable. Remember, it is these numbers that determine how much you can expect to walk away with when you say sayonara.
A side note here: If you have not reviewed this information in the last few months, now is a great time to get yourself up to speed on your business’s financial standing.
Know your buyers
There are many buyers who want you to sell your Nashville business just as much as you do. But, no two buyers are alike. A huge chunk of business-owner-hopefuls plan to do so after a layoff or unwanted transfer. Some look to entrepreneurship after retirement or because they are unsatisfied with their current career. It is important to know who is looking so that you can best identify a willing buyer.
A willing buyer is one that not only has the desire and need to buy a business but also has the financial resources to do so. Most importantly, like you, they will have a reasonable expectation as to what they can expect to get out of it. This is, in part, why having your financial ducks in a row is so crucial to the selling process.
Whether you have decided to sell your business or not, people looking to buy in Nashville will want to know a few things before they consider your organization. Questions you should be ready to answer include:
- What is your worst profit year?
- Are there opportunities for further growth?
- How is this business unique, and will it stand out in Nashville’s ultra-competitive markets?
- Is current inventory included in the sale?
- How much money does the business currently owe? Will this be settled beforehand?
- Has the company consistently realized an annual increase in sales and/or profits?
- How much is it going to cost?
This final question includes the cost of acquisition for the business itself, salaries of all current employees, rent, if applicable, and any other ongoing expenses associated with running the business. Remember, ultimately, what you are selling is cash flow. If you can not provide financial statistics and answer the hard questions, it is going to be much more difficult to sell your business. Nashville’s investors will not wait around for you to get this information, it has to be ready when they are.
The small things matter
Looking good on paper is only part of the puzzle. If you want to get the most out of your business, you also have to make a good physical impression. Just like selling a home, your best bet is to spruce the place up before buyers come to call. A few small improvements, such as a new copier or redecorated front desk, can make a big difference. While these may not directly affect the price, they will steer your buyer’s first impression. If you are looking to sell your business to an out-of-town buyer, add a bit of Nashville flair, such as skyline art or record displays. This will enhance the overall feel of your brick and mortar location.
Another small thing you can do – and one that will not cost you a dime – is to create an operations manual. This will leave your buyers feeling as though your business is organized and assure them that it will run as smooth as silk after the acquisition.
For help selling your business, contact Beacon Exit Advisors today at 615.649.6999.Read More
What is so special about “Baby Boomer” business owners? Well, there are a lot of them. It is estimated 52 percent of businesses are owned by people between 50 and 88 years of age. This equates to 9 million businesses in the United States. Put it another way, a business owner is turning 65 every 57 seconds.
So, why is this important? Typical of most business owners, the value of their business amounts to 50 to 75 percent of their net worth (if not more); the remainder in personal real estate and financial investments. Ordinarily, the business owner has only one chance to monetize his or her largest asset through the sale of the business.
It is estimated that 11,000 people are turning 65 years old every day, with this trend continuing for the next 18 years. Being that many of these Baby Boomers are also business owners, one would suspect that every year for the next two decades more and more business owners will be wanting to sell their businesses to cash out and fund their retirements. These businesses amount to some $10 trillion worth of assets.
Yet while more and more businesses go up for sale, the audience of buyers is decreasing. Today, the highest segment of business buyers is the same Baby Boomers in the age range of 55 to 64 years old. The 80 million millennials in the U.S. make up a larger demographic, though their abilities to purchase these businesses are quite low.
Applying the law of supply and demand, there is going to be a growing inventory of businesses for sale each year, while the number of qualified buyers is decreasing each of those years. The law of supply and demand would suggest there will be pricing pressure on these businesses. In addition, overall only 1 out of 4 businesses actually sell after being put on the market; however, the success rate increases to 1 in 3 for businesses with sales of $10 million, and the sale success rate grows to 1 in 2 for businesses with sales greater than $10 million.
The PriceWaterhouseCoopers accounting firm estimates more than 75 percent of business owners have done little planning for their single biggest financial asset. It is sad to say, but business owners spend more time planning their next vacation than planning for their exit into retirement.
Business owners should start the exit planning process today. Serious consideration should be given to creating a timeframe to place the business in the best position to be sold at the highest possible valuation.
Fortunately, the window of opportunity is quite good. Current conditions of rock bottom interest rates, low inflation, historically low capital gain taxes and overall high business valuations make this an ideal time to sell a business. In real estate it is all about “location, location, location,” whereas in business it is all about “timing, timing, timing.” Now is the time to cash in.
Exit planning, however, is a process that requires a significant amount of work. Most important, business owners need to assemble a team of professional advisors to assist them in this process. The team may consist of all or some of these professionals: a business intermediary firm, CPA/accountant, business attorney, financial planner, investment advisor, insurance advisor, valuation specialist, investment banker, banker and business consultant.
Using the analogy of an actual roadmap, this process can be broken down into five exits:
Exit 1: Making the Decision to Sell
Exit 2: Exit Planning Process
Exit 3: Maximizing Business Value
Exit 4: Preparing the Business for Sale
Exit 5: The Deal Process
The actual Planning Process often includes the following seven steps:
1. Identify Exit Objectives
2. Quantify Business & Personal Financial Resources
3. Maximize & Protect Business Value
4. Ownership Transfer to Third Parties
5. Ownership Transfer to Insiders
6. Business Continuity
7. Personal Wealth & Estate Planning
There is no time better than right now to start planning an exit, whether that is tomorrow, next month, next year or the next decade. Just be careful not to miss your EXIT…else you will hear your GPS (or significant other) say, “when possible turnaround” or as my GPS would say, “you idiot, you missed your exit…proceed on this road for another 20 miles.”
This article appeared in the November 2015 edition of Traverse City Business News.Read More