Want Top Dollar when Selling Your Business? Start Planning to Sell 3-5 Years Out.
Selling a business is often one of the most significant financial transactions that a business owner will ever make. This is especially true for Baby Boomers who are looking to retire and are considering selling their businesses as a means to fund their retirement. According to the Exit Planning Institute, there are several reasons why business owners should start planning to sell their businesses three to five years before their sell date. In this article, we will explore these reasons and offer some insights into how Baby Boomers can prepare to sell their businesses.
There are many reasons why business owners should start planning to sell their businesses three to five years before their sell date. First and foremost, it takes time to prepare a business for sale. Business owners need to take the time to review their financial statements, identify areas for improvement, and make the necessary changes to increase the value of their business.
Secondly, by starting the planning process early, business owners can ensure that they receive the highest possible sale price for their business. According to the Exit Planning Institute, businesses that have been prepared for sale typically sell for a higher price than businesses that have not been prepared. By taking the time to prepare their businesses, Baby Boomers can ensure that they receive the best possible return on their investment.
Finally, by starting the planning process early, business owners can mitigate their risk. Selling a business is a complex process that involves many different parties, including buyers, lawyers, and accountants. By starting the planning process early, business owners can identify potential issues and address them before they become major problems. This can help to minimize the risk of a sale falling through or a buyer backing out at the last minute.
How to Prepare to Sell Your Business
Now that we have discussed why it is important to start planning to sell your business three to five years before your sell date, let’s take a look at some of the steps that you can take to prepare for a sale.
Get Your Financial Statements in Order
The first step in preparing to sell your business is to get your financial statements in order. This includes your balance sheet, income statement, and cash flow statement. Buyers will want to see at least three years of financial statements, so it is important to have these documents organized and ready to go.
Identify Areas for Improvement
Once you have your financial statements in order, the next step is to identify areas for improvement. This might include reducing expenses, increasing revenue, or improving your product or service offerings. By making these improvements, you can increase the value of your business and make it more attractive to potential buyers.
Build a Strong Management Team
Buyers are often looking for businesses that have a strong management team in place. By building a strong management team, you can demonstrate that your business is capable of operating successfully without your involvement. This can make your business more attractive to potential buyers and can also help to mitigate your risk in the event that you need to step back from the business before it is sold.
Develop a Succession Plan
As a Baby Boomer, you are likely thinking about retirement. Developing a succession plan can help to ensure that your business continues to operate successfully after you have retired. This might involve identifying a successor, grooming a family member to take over the business, or selling the business to a third party. By developing a succession plan, you can ensure that your business is in good hands after you have retired.
Seek Professional Advice
Selling a business is a complex process that involves many different parties. It is important to seek professional advice from a lawyer, accountant, and other professionals who specialize in business sales. These professionals can help to guide you through the process and can help you to avoid costly mistakes.
If you are a Baby Boomer who is thinking about selling your business, it is important to start planning at least three to five years before your sell date. By taking the time to prepare your business, you can increase its value, ensure that you receive the highest possible sale price, and mitigate your risk. Some of the steps that you can take to prepare your business for sale include getting your financial statements in order, identifying areas for improvement, building a strong management team, developing a succession plan, and seeking professional advice.
According to the Exit Planning Institute, there is a significant transfer of wealth that is expected to occur in the coming years as Baby Boomers begin to retire and sell their businesses. In fact, the Institute estimates that over 4.5 million businesses are expected to be sold in the next ten years. This means that there will be a lot of competition among Baby Boomers who are looking to sell their businesses. By taking the time to prepare your business for sale, you can ensure that your business stands out from the competition and attracts the best possible buyers.
Finally, it is worth noting that the process of selling a business can be emotional for many Baby Boomers. After all, they have often invested a significant portion of their lives into building their businesses. It is important to work with professionals who can help to guide you through the process and who understand the emotional impact that selling a business can have. By working with professionals who specialize in business sales, you can ensure that the process is as smooth and stress-free as possible.