Managing the financials of a small business can be a challenge–particularly when the time comes to sell your business. The net worth of the average small business owner is typically tied up in his or her business. More than just the furniture and inventory, more abstract concepts like customer loyalty or the familiarity of your particular brand may be of immense value.
Even if you plan to keep your business, well, yours for decades to come, there are steps you should take now to ensure that you reap monetary reward for all that effort you put in along the way. This is true, too, even if your prospective buyers are your business partners, or if you expect to hand things over to members of your family.
Think Beyond Your Product or Service
As I mentioned, your business has enormous potential for added value that goes well beyond the revenue-generating product or service. If your buyer is serious, they will pay just as much attention to the team you have assembled and your customer relations. A solid foundation of experienced employees is vital for any transitional period, empowering the new owners to hit the ground running without need to spend weeks with hiring and training. An ongoing business relationship with a customer does the same, ensuring that revenue is coming in even after you are long gone.
Establish the Real Value of Your Business
You want to maximize what your get out of selling your business, so a professional appraiser is a must. There are many, many ways to value a business; each industry has its standards and you should not be trying to do this yourself. Not only will a professional price out aspects you may have missed, but they may even be able to provide you with simple things you can do to shore up your position. For this reason, plan to bring them in at least a year ahead of the prospective sale.
Document your business plans and processes.
You have built your business and know every aspect of its operations, but what may seem obvious to your experienced eyes may not be to your buyer. Being able to leave them with clear documentation of how your business functions and what existing business relationships are in place is not only useful for them moving forward, it is a testament to your good management practices that will edge the value of your business upwards.
Some business buyers won’t even consider buying a business that isn’t turn-key – meaning that the business processes are established and well documented, so they can step in with minimal hassle.
Take note that documentation is also a firm shield against any litigation that may be levied against you, both before and after the sale. Make certain that you have the following:
- Employment policies in an employee handbook.
- Written contracts with all employees, customers, vendors, or whomever else your business has a relationship with.
- Complete financial records
- Up-to-date corporate records
- Have the Right Structure in Place
- Fully-maximized tax benefits and well-protected assets are another important value-add. If you haven’t already, make sure that your business structure is the right one for you and your business. An LLC or corporation is a must if the greater part of your net worth resides inside the company, not to mention that savvy business buyers generally don’t like to buy sole proprietorships or general partnerships.
We can help you protect and grow your company through effective risk management. Call our office today at 612-206-3701 or via our online contact form to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit today.
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