Run Your Business Like You Have To Sell ItIndustry statistics indicate that the average small business changes hands every five years or so. If you're thinking about buying a business, or own one now, the day will come (faster than you think), when you'll want to sell.
By positioning your business to operate in a certain manner staring today, you'll not only sell it for more, you'll actually make more money between now and then.
The key to selling anything is to make it easy for someone to buy. This is especially true when it comes to a business. There are certain things that have an enormous impact upon the eventual price you will obtain.
A Problem Later Is A Problem Now:
While trying to build your business, even if you have no plans to sell it, look at it through the eyes of a possible buyer. By simply identifying possible issues, and fixing them, your business will improve immediately. Likewise, these matters will not come back to haunt. Don't think they'll disappear or that a savvy buyer won't uncover them. They'll stick around and hurt you today and down the road.
Keep Good Books and Records
In operating your business today, keeping great books will allow you to always have a true grasp on your cash flow and the ability to properly analyze expense and other activity.
Systems, Policies and Procedures
Similarly, every buyer is concerned that too much of the business may be new to them or that they won't ever be able to grasp the guts of the business. With top-notch manuals, systems and procedures, this concern will be completely eliminated so they can focus on replacing you effectively.
What happens if you get hit by a cement truck tomorrow?
Unless an individual comes from a like industry, or is one of your current employees or partners, they will be worried about the transfer of your knowledge. Regardless of how simple your business model may be, training a new owner to do what you do every day is crucial. The majority of people buy businesses that are in new industries (I don't necessarily agree, but that's the fact). As they go deeper into evaluating your business, they usually get nervous by thinking about all of the things they don't know. If you don't have a simple mechanism to show the new owner how to get up to speed quickly, or if they fail because your job role was too overwhelming for them, you too can suffer if you've participated in the financing.
Unreported Income – You Can't Suck and Blow!
Furthermore, for every dollar you steal, you're probably saving thirty cents or so on taxes. On $30,000 a year, over five years, you've saved yourself a grand total of $45,000 plus payroll taxes. Now, if you take the same $30,000 per year, and record it properly on your books, the total amount will be added back to the total figure that a buyer will use to value the business, including the payroll taxes. Here's the kicker: businesses sell at a multiple. That same $30,000 will have a two-three-times multiplier attached to it. On the high side that $30,000 will increase the value by $90,000. That's double what you saved by not reporting it.
From an operational standpoint, that same money kept in the business can be used for all kinds of marketing or business-building. Use it right; the money can have a significant impact on the business, which again will result in more money while you own it, and two to three times more when you sell it. Sure, "cash" is sexy, but in reality it's nothing more than a temporarily high, just like a "one-night stand".
When all is said and done, if you approach the daily running of your business like you have to sell it tomorrow, you'll find yourself implementing strategies that will immediately improve your business, and will pay you multiple dividends down the road when the day arrives to sell it.
For many, owning a business is a dream. For some, it will become reality. Your fate is in your hands. Whether you choose a start-up, franchise, or existing business, it can be done. It's up to you. Currently, the market is in your favor and the time is right, for you to finally put yourself in a position to be your own boss.