This article are provided for information purposes only, and are not intended as legal advice.

How long in advance should you plan to sell your business?

March 16th, 2010

The longer you have to plan to sell your business, the better it may be for you.  Unfortunately, there are requirements such as health etc which require you to sell a business immediately but many business owners plan well in advance of selling their business.  This is the age where the older baby boomers will be retiring and it is estimated that over $1 trillion of businesses will change hands over the next 10 years.  This means that people will have up to ten years to plan to retire and sell their business if they start thinking early.


Why do I say that time is in your favour?  The maximum selling price is generated from earnings over the last three years.  If the business has been doing well and you were happy with the results but know it could do much better, what is involved in getting the business to the next level.  Is it time, is it money or is it both?  What are the potential rewards for taking the business to the next level? If you need to spend 6 months of your time and $50,000 investment but the potential will be additional profits of $100,000 per annum, using a multiple of 3, this $50,000 investment could translate into an increase in purchase price of $300,000, is it worth it?  In this scenario, you will need to show three years of earnings to achieve the increased selling price.


In another scenario, a $50,000 may not achieve any increase in sales but you believed that it would.  The $50,000 dropped earnings therefore that would have an impact on the selling price of the business unless you can prove over a period of time that was a one time investment attempting to increase profits. 


If the business is large enough, do you have managers in place to operate the business?  Would the management team be a logical buyer?  If you are planning to retire in ten years, what about selling to the management team over a ten year period? 


When you are selling your business, what is your goals, maximize the selling price, maximize the amount which you are left with after taxes, the health and longevity of the business or the name of the business or any combination of the above.  I knew of one business owner who built up his business over a long period of time. Unfortunately he died of cancer several years ago.  The most important thing to him was that the name of his business survive and not be acquired by a competitor.  He worked hard to build the business and his goal was to see it succeed and if possible have current management buy the business.   Is a name as important to everyone?  Every person is different, the more quirks you have about selling your business, the longer it will be to find the buyer of the business which meets your profile.

Filed under: Selling a business — Gary Landa @ 8:29 am

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