Thinking of Selling Your Business? This is What You Need to Know!
41% of businesses in North America are owned by Baby Boomers who in 2021 are between 55 and 75 years old. These people are actively thinking about retirement and how they are going to be able to get their money out of the business. Research shows that in many cases up to 90 % of a business owners’ equity is tied up in their business. This is a problem if you own a business and are planning to use that money you have invested, for funding your retirement years.
Unfortunately, according to Tom West who is the leading authority for business brokers and the author of the Business Reference Guide, only 25% of small businesses ever sell. Most are closed up and sold for assets. Mr. West breaks it down further by estimating that only 20% of businesses actually sell with sales under $500,000 with 4 employees or less and businesses with sales of less than 1 million dollars who have typically 5-9 employees. Companies with sales of 1-2.5 million sell approximately 25% of the time and those with sales of 2.5 million to 10 million typically sell 33% of the time.
And there is competition if you want to sell your business. , twenty-eight percent (28%) of owners surveyed by Biz By Sell said they plan to sell in the coming year, either due to retirement (52%), or burnout (38%). So making sure that you have a plan to sell your business, just as you had a plan to grow the business is important.
So how much can I get for my business? According to the Biz By Sell Insight report, businesses that sold for $1 million or higher in the last year, averaged a .93 revenue multiple and 3.67 cash flow multiple. This means if your business only made $40,000 at the end of the year, you might be only able to sell it for $146,800 plus your assets.
In light of this, I am sure that some boomers now wish that they went and spent the last 35 years working for a large corporation or a government where they would walk away with a 1 million dollar or more pension over 25 years. Unfortunately, only a select few are entitled to those pensions.
If you want to be able to sell your business you need to focus on the following areas:
- Increase your profitability. Nobody wants to buy a business that isn’t making money. Recently I helped someone evaluate a business that had a low profitability rate. I suggested he walk away because he was in reality, buying a low-paying job.
- Get the business to run without you. A profitable business that runs on systems, not on the sweat equity of the owner, is a lot more valuable than one where you need to be involved daily to make sure it is successful.
- Start planning now. A typical business takes 6-9 months to sell. If you are in a remote location or have a business that is marginally profitable it might take much more.
- Be Creative: Recognize that you might not get full value for your business if you don’t use some different strategies to sell it. We were working with a business owner recently whose first option for a sale fell through, he started thinking out of the box and came up with some other options that might enable him to sell the business quickly and still get the value he needs to move on.
Selling your business is perhaps the most important factor in your successful retirement. Understanding what you can do to influence your success in selling your business can reduce your stress and help you set realistic expectations.
Dave Fuller, MBA, is an Award-Winning Business Coach and the author of the book Profit Yourself Healthy. Questions about your business? Email email@example.com PivotLeader is an Associate member of HRAI.
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