Business Tip: When, how do I sell my business?
Now that I am a part of the Small Business Development Corp. and get to work with business owners on a regular basis, often I reflect back to the time when I was in business myself.
One of the areas I neglected and assumed would take care of itself was retiring and selling my business.
Upon reflection, I assumed my business would provide a job, good income and satisfaction doing what I liked to do. Also, I assumed when the time came, I would simply sell my business, or my son would take over, and I would be set for the rest of my life.
It did not work out as assumed.
An area we have begun to focus on in our center is not only the business planning and modeling for the operation of a business but also the exit or transition strategy of the business owner.
This planning process reminds me of something a friend of mine told me was an old Chinese saying: "The best time to plant a tree is 20 years ago; the second best time is today."
Another appropriate saying this reflects is: "You got to be very careful if you don't know where you're going because you might not get there," by Yogi Berra.
Statistically, a typical business will need three years to properly position its business to maximize the sale to a new owner. For a family transition, typically, the transition period is closer to seven years.
One of the goals of the owner of a business planning to transition is positioning the business to succeed after the change. The new owner should typically be expecting three things from the investment in the business.
One, a job paying a good wage for the work involved.
Two, sufficient cash flow to pay the obligations and notes involved in purchasing the business and operating.
Three, a return on the investment made from purchasing the business.
The new business owner will also expect to do better than the previous owner. Why buy a business if there is not potential for growth?
Not only does the current owner of a business have to be able to prove growth potential and cash flow, but he/she will also need to provide the model for operating the business. The transaction should end up being a win-win transaction with both parties being rewarded and satisfied over time.
I have developed a sincere passion for assisting business owners in this transition planning.
At the UHV SBDC, we offer confidential meetings, and I would personally welcome the opportunity to discuss this with any owner thinking about selling or transitioning their business in the future.
A person interested in purchasing a business should consider what to expect and look for when making this purchase. If you are thinking of purchasing a business, we can help you. My direct email address is firstname.lastname@example.org.
Joe Humphreys is the director of the UHV SBDC and a Certified Business Advisor IV. The center offers counseling, training and technical assistance to existing and start-up businesses in an 11-county area. To make an appointment for business services or register for a UHV SBDC workshop, call the center at 361-485-4485 or email at email@example.com.