We get asked by many Business Owners “how do I prepare my Business for a Sale”. It is a very valid question since there are a number of things you need to consider as you get closer to that critical point of showing your Business to anyone who might be interested in purchasing it.
First and foremost you need to know what your financials look like and how they have changed over time. The trend, fiscal health, and recent performance of your business -as it relates to the general economy- will tell the potential Buyer whether or not the asking price is valid and/or if there is opportunity within. It is the Profit & Loss (P&L) of the operations and the value of the Assets and Liabilities of the Business that every Buyer will want to understand.
The P&L shows the health of the business over a particular time. This is usually a one year period, but it is important to capture the current year operation is captured as well. You should have your interim year financials along with the last two full years, or more depending on the size and complexity of the Business.
The other financial instrument is the Balance Sheet which shows a snap-shot of the Assets and Liabilities for the Business at a particular time, usually the last day of the month or year you are showing for your Profit & Loss. Every Buyer is going to want to look at the Profit & Loss for the Business and since it usually will take a month or more to work out the details of a purchase transaction and they will want to make certain the value is holding up.
In determining the Business Value, keeping as much profit as you can in the Business is a plus. However, you shouldn’t be put off by the amount of profit you report because the true measure of the Business Value is in the cash flow or discretionary earnings. This amount will be based on the amount of cash the business generates that is not required to run the Business, not just its net profit. A qualified Business Broker can quickly pull these numbers together and identify the discretionary earnings for the business and help project the marketable price range for the Business.
We pride ourselves in being able to accomplish all of these items for our Sellers and work to make the selling process as stress free as possible. If you are interested in learning more or finding out what your Business could be worth? Contact Us!