How early should I prepare for selling a business?
You started your business because you love the market; are passionate about sharing your product with your customers; love working one on one with great clients… the reasons go on and on.
Eventually though, you’re going to want to move on to something else. Maybe you want to retire or maybe you just want to transfer the day to day operations to someone else so you have more time to write your memoirs. In any case, you’ll want a graceful (and lucrative) exit.
Since your a forward thinking entrepreneur, you ask yourself:
“How early should I start getting ready for the possibility of selling a business?”
How does “The day you get your EIN.” sound?
As a business owner you’ve got a lot on your plate. When you’re starting up, the last thing you’re worried about is your exit strategy.
Okay, if you’re starting up a venture capital (VC) funded enterprise then you and your VC’s will have discussed this but for most small business owners this just isn’t something we think about early on.
As you grow, you're engulfed in the operation of your business and ‘selling a business’ still isn’t on your radar.
As your business matures, and perhaps your personal needs or interests change, you will start thinking about other options. You might even start to think about life beyond your business.
There are actions you can, and should, take to make your business marketable and valuable.
When to get ready? “There’s no time like the present.” as they say.
Ideally, planning to exit from your business the day that you start it is the standard we can all strive for. Is it realistic? Not for most of us and that’s okay.
More practically, wherever you are now is the best time to get started. There is a chinese proverb that says “The best time to plant a tree is 20 years ago. The second best time is now.” and the same holds true for designing (or redesigning) your business for sale.
If you’re looking for a timeline like “You should start planning to sell a business 3 years before your expected exit.” There’s no simple rule you can turn to. Every business is different and every buyer/seller relationship is different.
According to an Inc.com article (https://www.inc.com/bob-house/how-long-it-actually-takes-to-sell-a-small-business.html) it can take 6-11 months of time to find a buyer for your business and that may not include the 2-3 months it will take to close the deal.
This data is consistent with my own acquisition experience. Remember that you could find a potential buyer and take 2-3 months to get to ‘No’.
Once you’ve already listed your business for sale or begun negotiations the value of your business is largely fixed. By preparing your business for sale before you ever list it you will position both yourself and the buyer for success.
Factors to Consider When Selling a Business
- Asset Value
- Inventory Perishability
- Employee Retention
- Intellectual Property (protected)
- Dependence on Owner
- Will You Use a Broker?
- Pool of Potential Buyers
- Tax Implications of the Sale
There are many more but what we need to discuss here is to identify the considerations like protected intellectual property, profitability and the business’ dependence on you. These are within your scope of control and significantly impact the value of your business when you go to sell.
The earlier you get started on creating a positive impact on those things, the more natural and integrated they will feel to your buyer.
There’s also the added benefit that many of these improvements are good general business practices that will make your business more successful while you still own it!
At first it may seem like preparing to sell a business doesn’t apply if you’re not looking for a buyer. The reality is that you’ll get better value out of a business that is run ‘ready to sell’. There’s one other thing to remember. Sometimes business opportunities come up that we weren’t expecting and when that happens you’ll be glad you put in the time.