Entrepreneurs who have built businesses with years of blood and toil often find that selling to a good firm doesn’t happen overnight.
Indeed, it takes three to five years of careful preparation, including doing such things as maximizing cash flow and putting in place the next generation of leaders.
As General Electric founder Thomas Edison once said, “good fortune often happens when opportunity meets with preparation.” For small business owners, that preparation is like selling your house — paying attention to some crucial details can help you get top dollar for your business. And decisions made years earlier can have a major impact.
The good news is that the market for selling small businesses is hot. The average multiple of cash flow, increased 1.6 percent to 2.35 and the average multiple of revenue increased 2.5 percent from 0.61, emphasizing how important it is for small business owners to boost profitability before listing their business for sale, the report said.
The bad news is that the vast majority of businesses that want to sell can’t find buyers — only about one of every five listings on BizBuySell’s online marketplace for small-business sales closed a transaction in 2016.
Here are five things owners can do to give their business the best chance of finding a buyer:
1. Maximize financial metrics
Creating cash flow that will continue after the business is sold is the best way to build significant value. Businesses must maximize use of labor and capital assets so that they operate efficiently.
Businesses should make sure their financial statements are above reproach and that there is no financial window-dressing aimed at convincing a buyer that the company is worth more than it actually is.