Every business owner has one thing in common. At some point, they will exit their business. Have you considered what steps you need to take so you can exit your business properly? How your business is sold and the amount of money you receive from the sale will depend on a number of factors. It is important that you are always thinking in terms of selling your business. In this article, I focus on three steps you can take today to start preparing your business for an eventual sale.
Document your processes
You need to think like a buyer. Someone looking at buying your business will want to know what makes you unique so that they can buy something they could not create themselves. They need to be ready to take over the business and start working in it straight away. Documenting all your daily processes is the first step you can take to start preparing your business for sale. The intellectual property you generate by this process is the unique value of your business. You want to be able to provide a document that anyone can open and use to run the business as well as you do.
Hire great managers
A business that relies on the owner of the business will achieve a much lower sale price than a business with a strong management team. You need to build a strong group of managers who can operate the business on your behalf. As the owner/operator you want to start removing yourself from the day-to-day operations of the company well before you sell.
Increase your EBITDA
The way that the sale price of a business is usually calculated is as a multiple of your EBITDA averaged over the previous 3–5 years. This is the true profit of your business and is defined as earnings before interest, tax, depreciation and amortisation. This accounting standard determines your company’s true profit. You need to maximise this figure so that if you need to sell your business quickly then you can maximise your return. Some of the ways to increase the value is by keeping your costs down or increasing your revenue.
It is often said that when a business owner decides to sell they are at least 1–2 years away from being in a position that they can maximise the price. If you start putting these steps into action you will help shorten that period, rewarding yourself for all the effort you have put into building your business.