Do you have a transition strategy for when you’re ready to sell your business? If your answer is no, you’re not alone. Sixty-six percent of business owners do not have a transition plan in place, according to a recent study by EPI. Not only do most business owners lack a formal plan, but only 20 percent have even sought advice regarding transition planning.
The reality is that by the time many business owners are ready to sell, they’re not able to do so on their own terms because they haven’t taken the necessary steps to formalize their transition plan. One of the biggest things business owners are missing is the true value of their business. In fact, less than 40 percent have had a formal valuation conducted in the last three years.
Completing a business valuation should be one of the first steps when beginning your transition plan. You should always enlist the help of a third party, like an accountant or business broker, to get an accurate estimate instead of relying on revenue projections or tax returns. Once you know what your company is worth, then you can start thinking about how you’ll sell it.
Another thing to consider is the market. Is it a buyer’s or seller’s market? What is the average selling price for businesses in your sector or city? How much competition will you face? It’s good to be flexible with your “selling time frame” so you can wait for the market conditions to be in your favor.
The biggest benefit of starting early is time. If your valuation is lower than you thought, you’ll still have time to readjust your strategy before you actually plan on selling. According to BizBuySell, 53 percent of small businesses are owned by Baby Boomers, most of whom are nearing or have already surpassed the retirement age. As this demographic continues to list their businesses at a rapid clip – a 5.1 percent year over year increase as of the second quarter of 2018 – making sure you have an attractive asset for buyers is imperative.
The Bottom Line
It’s never too early to start your transition plan. If you have yet to do so, begin by completing a formal valuation of your company. This will help the rest of your plan fall in place. If you’ve already started transition planning, congratulations! You’re one step closer to selling your business when you want to.