Knowing the financial and legal ins and outs of your business isn't just crucial—it's essential—especially if you're contemplating selling or transitioning it to new hands.
Think of it like being the captain of your ship—you need to know every nook and cranny to navigate the waters successfully. That's where a succession plan comes into play. It's your roadmap, highlighting all the critical financial elements of your business.
Dealing with cash
Jumping straight into the thick of things, handling cash flow is often among the first hurdles to clear. It's all about tuning into the business's pulse—understanding your inventory, keeping an eye on your suppliers, and managing those who owe you. But it doesn't stop there.
You'll want to flex those predictive muscles, forecasting future cash flows to steer your ship with confidence. It's simple, really—just keep on top of the basics, and you're already on the right track. Using a broker to help sell your business will simplify the process, and they'll typically take somewhere between 5%-15% of the final sale price as commission.
Safeguarding your assets
Don't overlook the importance of safeguarding your assets—it's paramount for the success of your venture. Think of it in terms of tangible and intangible assets. Tangible assets include your equipment, inventory, and property. Keep them in tip-top shape, have them periodically valued, and make sure they're adequately insured.
Intangible assets are just as essential. Your team, for instance, is a valuable asset. When they're motivated and their efforts are rewarded through effective management, they can significantly boost your business's sale value.
But let's not forget about your creative endeavours—those unique designs and original product ideas. They're protectable under copyright law, an element of intellectual property law. So, treat your 'creations' well—they might just be your golden ticket!
Assessing your business's worth and getting insured
Let's talk about getting a yearly business valuation. Consider it as a regular health check-up but for your business. Why? Well, if you're thinking about knocking on a bank's door for a loan, they'll want to see this. This valuation is like your business's report card—it tells you how it's performing.
And while we're on this topic, let's not forget about insurance. It's like a safety net for you, your assets, your business, and even that income you might miss out on if, heaven forbid, you're out of commission for a while.
Did you know that if a business partner were to pass away, an insurance policy could offer a payout to their spouse to cover lost future income? It's true! Business partners can even insure each other to minimise any financial risks. Pretty cool, right?
An insurance broker can help you navigate these waters and find the right insurance for your business. Trust me, it's a conversation worth having.
Maintaining up-to-date records
Here's the deal—tidy records are happy records. Honestly, there's nothing quite like the spectre of messy, inconsistent financial and legal records to spook potential buyers away. Imagine this: would you trust the credibility of information that looks like a jigsaw puzzle with missing pieces? Nope, didn't think so.
On top of that, no one wants to inherit a housekeeping nightmare after buying a business. So, do your homework—keep your records pristine and up-to-date. Trust me, it'll make your business shine brighter in the buyers' eyes.
The smooth operator: The buy/sell agreement
When life throws you a curveball, it's best to be prepared. Let's say one of your business partners has an unfortunate accident, gets a case of itchy feet, or decides it's time to chase those dreams of retiring in Hawaii. You want the transition to be as smooth as sailing in the Caribbean, not as choppy as a stormy North Sea. That's where your trusty buy/sell agreement comes into play.
Think of this legal document as a secret recipe, whipped up by all of you co-owners. It outlines how to handle these unexpected changes without causing a hiccup in your business.
One sweet solution might be for the remaining owner to pay an initial sum for the departing owner's piece of the business pie, then continue with scheduled repayments thereafter. It's like a layaway for business ownership—easy, convenient, and designed to keep your business on an even keel.
The essence of estate planning
Alright, let's delve into the realm of estate planning. See, when you're brainstorming about possible changes in your business structure, remember, it's not just your financial future on the line. Nope, it impacts anyone with a vested interest in your venture, and possibly even your family members – both the ones actively involved and those who aren't. So, you've got to tread carefully here, my friend.
Tax implications, retirement income planning, and the financial whirlwind set off by a change in ownership are all playing cards in this high-stakes game. So, how do you play your hand right? Seek advice from the pros. Lawyers, accountants, financial planners—they're your ace in the hole.
These savvy guides can help steer your ship through these choppy waters, ensuring you land on solid ground, rather than sinking into a financial quicksand.
Key considerations to mull over before putting your business on the market
Let's face it, for many entrepreneurs, selling their business can feel akin to sending a precious child off to college. It's a venture you've poured your heart, soul, and countless hours into. And often, it's so much more than just a livelihood—it's your life's work, your pride, your identity.
It doesn't come as a surprise, then, when some owners find themselves at the eleventh hour, contract in hand, and simply can't bring themselves to sign on the dotted line.
The process can stir up a real emotional cocktail. Consequently, before diving headfirst into the marketplace, it's crucial for entrepreneurs to do some self-questioning. Think of it as a heart-to-heart with yourself about selling your business.
Identifying your ideal business buyer: Who are they?
Not all business owners dream of a grand exit, with a hefty check in hand, bidding adieu to their enterprise. Some have their hearts deeply rooted in what they've created and nurtured over the years. You might be one of those who'd rather pass the baton to your loyal team members, who've been your comrades-in-arms through thick and thin.
Whatever your vision, it's essential to identify who you want at the receiving end of this transaction. Recognising your ideal buyer, and structuring the deal in a way that aligns with your vision, is a pivotal step in readying your business for sale. It's like setting the GPS for your business's journey ahead.
Charting your course post-sale: What's your next chapter?
Depending on your buyer, you might find yourself swapping your entrepreneur hat for an employee badge post-sale. It's not out of the ordinary for private equity buyers to insist on 'earn-out' periods.
This means you're sticking around, running the business, but with a new set of rules from the new sheriff in town. They might even ask you to put some of your equity back into the business as rollover shares. So, before saying yes to the deal, ensure you're up for a few more years of hustle under a new leadership.
On the flip side, you might be eyeing those golden years of retirement. But let me tell you, lounging on the beach, hitting the golf course—sounds dreamy, but may not be everyone's cup of tea, especially for those with an entrepreneurial spirit.
If planting the seeds of a new business venture is on your horizon, you've got to triple-check that there are no strings attached to your sale—no non-compete clauses, no restrictions that could put a damper on your next big dream. Remember, this is the next chapter of your story, and you're the one holding the pen.
Selecting your advocate: Who will represent you in the transaction?
Just as it takes a village to raise a child, selling a business is far from a one-man show. You're at the helm of a team sport, my friend! You'll need an all-star lineup of seasoned pros on your bench, ready to jump in and play their part at every stage of the game. Picture a readiness team, swooping in to spruce up those financials—making them so shipshape, they'll dazzle any buyer's eyes.
Then we have the personal tax advisors, the unsung heroes who'll help you navigate those pesky tax implications that come with a sale. And let's not forget the wealth managers, your financial guides planning your prosperous journey post-sale. All in all, it's about assembling a dream team who's got your back, making the process smoother than a well-oiled machine.
Timing your business sale preparation: Striking when the iron is hot
Remember, the early bird gets the worm, and the same principle applies when prepping your business for a sale. It's like marinating a steak—the longer the prep time, the richer the flavour, or in this case, the more valuable the deal. Even if you're not planning to sell soon, don't shy away from getting your financial ducks in a row with the help of an outsourced CFO service.
Think about it this way—knowledge is your superpower. Gaining a firm grip on your business's financial health can steer your decisions, helping you spot golden opportunities for revenue growth, trim that extra fat of unnecessary costs, and boost your business's profitability.
When getting ready for a business sale, it's a good call to have your sales readiness team and advisors on speed dial. Start building these relationships a few years before you plan to put the 'For Sale' sign up. It's like making friends before you need them.
When the transaction's in full swing, you'll be rubbing shoulders with these professionals daily. So, give them time to understand your business and its operations—ensuring a smooth journey towards a successful deal.
Remember, procrastination is the thief of time. Rushing your business sale prep at the eleventh hour can throw a wrench in the works. Frantically adjusting financial statements and forecasts during a live transaction is as tricky as threading a needle in a hurricane. It's always better to gather your collateral and financial data well in advance. This way, when it's time to strike the iron, you know it's hot and ready.