Small businesses don’t go on forever. Owners eventually retire or move on to other interests. Businesses are passed on to children, sold, or simply shut down. If you start to position your business for sale today, you will ultimately sell it more quickly and for more money, and make more in the time before you sell.
In selling a business, or anything really, a key factor is making it easy for someone to buy it. Here are three areas where attention now can improve you business now and pay big dividends later:
Keep Good Records Good, clean, clear, accurate books and records tell the story of you business’ history and are very important in a buyer’s understanding of what he/she is purchasing – the clearer they are the easier for a buyer. In addition, good records allow you analyze and manage revenue, expenses, cash flow, and other activities.
Establish Systems and Procedures Clear policy and procedure manuals help buyers understand your business and help give them the confidence the business has an infrastructure, it not just an owner operating by the seat of his pants. They also provide a repository for the business’ institutional knowledge, knowledge that otherwise might be lost if something happens to the owner.
Account for all Income If you take cash from the business and don’t record it in the business’ records or report it to the IRS, you are not only breaking the law but are cheating yourself! Buyers only believe financial results that can be proven, and since many small businesses are valued by multiples of cash flow, the multiplier is applied to a too-low cash flow results in a lower price. Much lower, generally, than any saving from evading taxes. You also hurt your credibility with buyers: buyers will believe if you would lie to the IRS you would lie to them.
Ultimately, you should run your business as if you were selling it today. Your business will run better, make more money, and you will make it easier for a buyer to buy – at a higher price.