Cash Flows From Acquiring And Selling Equipment Are Classified As: Preparing Your Business For Sale – How to Cash Out

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Preparing Your Business For Sale – How to Cash Out

Smart business owners know that to run a successful business, you need to be a great marketer, control your costs, and provide incredible customer service. However, when it comes time to sell your business, it’s important to plan a strategy that will leave you and your business in a great position. Creating and implementing an exit strategy for your business can provide you with much less stress and peace of mind knowing that when the time comes to sell, you’ll be prepared.

Selling your business should be a planned process to get the highest possible price for the business; not an accidental sale due to uncontrollable circumstances such as health problems, financial problems or untimely death.

Developing a successful exit plan should begin well in advance of your target exit date (I recommend at least three years). Here are some things to keep in mind as you get started:

Edit your personal financial picture.

As a prospective seller, make sure you have adequate protection with life insurance, disability insurance, and even business interruption insurance to protect your business in the event of an accident.

I also suggest meeting with a licensed financial planner. Often a seller’s greatest asset is their business. If the owner is forced to sell after several months or years of minimal returns, he will not be able to sell at the highest price and may not be able to get out with the money he expected. A planner may recommend building cash reserves or buying real estate to balance your portfolio.

Understand what customers are buying.

Most business buyers are primarily buying cash flow or net profit. Prove the financial strength of your business by providing them with (at least) 3 years of profit and loss statements, 3 years of federal tax returns, an equipment list, an inventory list, and a copy of your lease agreement.

Renting the building is equally important. When a business changes hands, an important element for the new buyer is to be able to secure a long-term lease. Lease negotiations can make or break a transaction, so it’s best to know the landlord’s intentions as soon as you decide to sell.

I also recommend that you systematize your business by preparing an operations manual for each area of ​​your business. Standard operating procedures provide the buyer with an existing system for success and will allow you to easily transfer information to the new owner.

how much is it worth

Now that you understand what the buyer wants, you need to determine what you as the seller want. Every seller must ask themselves, “How much money do I want to receive at closing?” or “What is my premium price?”

A key component to achieving the highest price is for the seller to offer a promissory note, making the seller a banker for a portion of the purchase price. By offering to transfer the banknote, the seller shows the buyer that he believes in the business and that even after the sale he will be financially invested in the success of the company.

When pricing a business for sale, the more reasonable the price of the business, the faster the business will sell. Be sure to engage a licensed business valuer or an experienced business broker to give you an opinion on value. By adding value to the financial statement, the buyer will have a better idea of ​​how much income to expect when taking over the business.

After receiving your business valuation, compare your business’s current value with your proposed exit date and expected premium prices. Is your premium price realistic? Is the timeframe realistic to achieve the necessary sales levels to achieve this price? In order to achieve your goals, all the elements must come together.

Get your best price.

If you find that you will not be able to achieve the price you want, you should start implementing strategies to change as soon as possible. Start with a simple SWOT analysis that examines your company’s strengths, weaknesses, opportunities, and threats. Necessary strategies may include creating a marketing plan to increase your sales or a cost containment strategy to reduce your costs.

As a business owner, you deserve the highest possible price for your business. Plan your exit strategy with the same amount of thought and detail as you plan your customer service strategy or craft your marketing plan. Ultimately, all business owners will leave their business, whether they plan to or not, and a good plan can be the difference between the “retirement” of your dreams or just a long vacation.

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