How to Prepare Your Business for Sale Even When It’s Not for Sale

As a small business owner, you have multiple responsibilities – creating a business strategy, keeping track of finances, handling legal responsibilities, managing marketing and sales, identifying staffing needs, addressing technology issues, and managing day-to-day operations. Even though that’s not a full list, let me add one more – preparing your business for a sale.

While that last one may not be on your radar, it should be, because you never know…

Owners of successful businesses receive unsolicited acquisition offers all the time. If you’re not prepared with at least a ballpark idea of your business’ market value, you may miss a solid offer or end up selling yourself short. Even if you aren’t approached, or don’t have the slightest interest in selling, having an updated valuation is important for business continuity and estate purposes.

There are many methods of valuing a business, but here are three of the most popular:

• Assets after debt – This is a straightforward approach that looks at what a business owns versus what it owes. The business valuation is the difference between the two. It’s an easy method, but it doesn’t factor in profitability or growth opportunities. It’s a better way to value retail businesses than service ones.
• Seller’s discretionary earnings (SDE) – The SDE method focuses on profitability and cash flow. It works better for service businesses because the calculation emphasizes a strong income statement as opposed to assets. Attempting to identify a reasonable valuation using SDE relies on a business having consistent revenue recognition and business expensing practices.
• Market comparison – One of the most accurate ways to value your business is to see what a similar business in your area recently sold for. While this information may not be easy to find, it’s still worth trying. When looking for a comparable sale, make sure to consider things like industry, number of employees, and number of customers.

Even if you have a current valuation, dealing with unsolicited offers can be a huge distraction from your primary responsibility of running your business. Having a documented approach in place for evaluating and responding to these types of inquiries can help make the exercise much less disruptive, and possibly extremely profitable. 

Selling a business is a process, not a one-time event. Even if you’re not thinking about it today, there’s a lot that goes into getting yourself and your business ready for an eventual sale. So, it’s never too soon to start.

As a financial professional, I’ve worked with many successful entrepreneurs as they’ve launched, grown, and ultimately sold their businesses. I can be an asset to you, especially if you are like many small business owners and wear both the chief executive officer and chief financial officer hats. From business valuation to reviewing offers, I can coordinate with your legal, tax, and other professionals to help ensure that your financial goals are represented.

^Sources:

^{How To Prepare Your Company For Sale When It’s Not for Sale | NetSuite}

^{How to Value a Small Business: 3 Simple Ways (fool.com)}