If your business has stable, significant revenue, a diverse client base, and consistent EBIT (earnings before interest and taxes) of between $500,000 and $3 million, you’re a successful Main Street business owner.
Here are seven types of buyers who actively pursue Main Street deals:
For you, this business has consumed — if not all, then the majority of — your time. It’s made of your blood, sweat, and tears, product/service lines, employees, stories, accounts lost and won, systems and processes, and so much more. And while a good buyer can certainly appreciate your tireless efforts, they’re going to evaluate your business under a different lens.
You see, unless you’re being rolled into a larger company or dismantling individual assets, you’re essentially selling the present value of future cash flow, an imperfect estimation based on both objective and subjective factors.
Financial planner Tom Orecchio says one of the biggest mistakes small-business owners make is relying too heavily on the sale of their practices to fund their retirements. The Westwood, N.J., planner with Modera Wealth Management says this is a problem largely because they frequently overestimate the value of their business.
"Monetizing a small business is as much an art as it is math. Certain circumstances can have a big impact on value and salability," he says.
Even the most prepped and profitable business can slip down a bad path by choosing the wrong advisor, strategy, or valuation. Since these transactions are new to most sellers, professional assistance can prove helpful. That help can come in the form of a CPA, attorney, business broker, or investment banker. But be warned: Choose your deal team wisely.
Selling your small business can be a powerfully emotional experience. Years of blood, sweat and tears have been spent making your venture a success. But instead of focusing on the loss of your business, consider the opportunities that come with your newfound freedom.
Selling a business isn’t simple, but most entrepreneurs have more options than they realize. Taking the wrong approach could have serious financial consequences for both the entrepreneur and the company. So it pays to know the pros and cons of several ways to cash out and to think carefully about which is the right fit for your business and you.
I have had many conversations recently with people who have run their businesses for a number of years and are now approaching retirement. When we discuss their plans, a number of them give the same response: they will keep the business going for as long as possible until they lock the doors for the last time.
When asked why not sell up, the responses are frighteningly similar: from: "It's not worth anything," to: "Who would want it?" It is estimated each year that more than 80,000 businesses with turnover of less than £10m and owners aged over 60 wind up their solvent business when they could have sold it on to a new owner or to existing staff as a going concern.
Many of these entrepreneurs could have reaped the benefits from their years of investment of time and resources and had some additional money to spend in retirement, or even set up a consultancy contract.
The last time I checked, the mortality rate continued to hover right around 100%, which means your business isn’t going to be yours forever. You’re going to sell it, shut it down, or pass it down a generation. An estimated 70% of businesses don’t have a family member capable or willing to assume responsibility. What are you doing to plan for the sale?
“More than 50 years ago, Charlie told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price.” -Warren Buffett
I’ve had the opportunity to negotiate some significant transactions. I’ve bought companies, organized partnerships, and sold large contracts. Each of these situations is a “deal,” where value is negotiated, and every deal is made up of the same underlying principles. Here’s how I view deal-making, along with some lessons I’ve learned.
You only sell your business once.
That thought alone may be enough to keep you up at night when you decide it’s time to cash in on your years of hard work — as if there isn’t enough pressure associated with every step of the sale of a business. But there’s much you can do to prepare for the sale, and it’s not a bad idea to start thinking about it long before the day arrives.