How to get the most profit when selling your business

Sometimes people mistakenly believe that because of the sheer volume of tips and guides on "how to sell your business", this is the most important issue business owners should be concerned about.

In fact, however, the most important question they should be asking has little to do with the process of selling a business. Rather, it is about how to secure the best financial return from selling a business.

The only keyword that defines the profit maximization of an exit strategy, — this time. Among the many factors to consider when selling a company, the ones that have the most impact on the final sale price are related to timing.

Market

Like selling a house, companies sell for more or less depending on the market they operate in. For example, a construction business listed for sale during a real estate downturn is likely to be worth much less than one offered during an upturn.

It's not just the ebb and flow of a particular market sector that affects the sales of a business. It is also necessary to take into account the general appetite for investment. Windows of opportunity — these are periods characterized by an excess of national and even global capital, which contributes to the creation of a sellers' market.

While market movements cannot be controlled by individual players, trends can be identified, especially for industry insiders. It is very important that business owners keep abreast of changes in the market. Everyone who is engaged in his business cannot but notice the trends in the market. Entrepreneurs considering selling a business should coordinate the process in line with these trends.

Company

Buyers don't pay for business as it was. Buyers don't even pay for the business on an "as is" basis. They buy a company based on the principle "as it will be."

To maximize value, a business should be sold when it is operating at peak efficiency and when profits tend to rise. Start maximizing profits and cutting costs as early as possible (even years before). Many owner-operators use their company to cover personal expenses and reduce tax liabilities, but this is not an effective exit strategy. Tax savings usually overshadow the company's value growth based on a multiple increase in net income after spending cuts.

Leading team

People — this is perhaps the most important part of a business and when it comes to selling, in many cases the management team can make or break a deal.

The right people will work together to not only add value to the current business, but help secure and execute a profitable sale.

With people, the main thing — plan everything in advance. Selling a business with a brand new management team that was brought in just months before the business was put on the market is likely to alienate buyers and investors. But invite them in a year (or more) before the sale, and they will have a chance not only to get in the know, but also to develop and implement an exit strategy.

When considering the people involved in the sale, what is often overlooked is the fact that the management team that helped build your business from the start may not be the best people to take it to the point of sale. Sometimes the ties can be too close. It's worth seriously considering whether you're confident that the people you're working with are the right people to help you sell your company. If it doesn't, do something about it as soon as possible.

Contracts and processes

The sale, transaction, and delivery of a product/service is necessarily accompanied by a continuous stream of administrative and contractual agreements.

Contracts with suppliers, customers, employees, stakeholders, not to mention business process reviews that keep things moving, — There are a lot of things that need to be done on a regular basis. It's easy to overlook some of these questions or forget about less important documents. If you leave the task of finding efficiency in these areas to your buyer, it will be tantamount to offering him a discount on the price of your business.

Someone who tries to sell their business before contracts are in order and business processes are reviewed will have a less attractive offer for potential buyers. They will have to unravel all the complexities on their own, adding time and costs for due diligence. A company's disorderly state can also be used as a bargaining chip to lower the price.

For those who are serious about making the most of their sale, these operational issues are critical.  The sooner the seller starts to solve them, the greater the potential for increasing the sale value of the company.

Those who are short on time and need to focus their efforts on one key area should first of all pay attention to financial documents. First of all, buyers want to see convincing evidence of profitability.

Resellers with a bit more time to spare can start to break things down and take a closer look at contracts and agreements with suppliers. You also need to analyze everything from intellectual property rights to the IT systems that support the business.

Broker or solo

One of the most common questions for business sellers — Should they bring in a business broker? Sometimes the challenge is finding a business broker with a proven track record, knowledge of the seller's industry, and a decent up-to-date database of potential buyers.

If a business is put on the market without a broker, sellers will have to do a lot more work. Savings on commissions do not compensate for the time spent on the entire transaction process. In addition, the seller does not have all the professional skills and resources that the broker does. It is wiser to spend time maintaining the smooth operation of the business, and entrust the sales process to professionals.

Business brokers can help you evaluate the value of a business, develop a strategy for selling or buying, preparing the necessary documents, negotiating and closing a deal. They know the market and have experience with various types of businesses, which allows them to provide expert advice and assistance in dealing with various issues related to the sale or purchase of a business. This work should be entrusted to the appropriate specialists. One of such professional teams operating in the international market, — this is Russian Eurasian Business Broker (REAB).

So the secret to maximizing profits when selling a business is timing. If possible, owners should plan an exit strategy before their exit is possible. Don't wait for retirement or other circumstances to sneak up on you and force you to sell the business, make sure it's something you can control.

Some of the most successful sales in the business come from being built into the business plan from the company's early days. This is what will allow the business owner to act immediately, as soon as any opportunities appear.