I was sitting in a meeting between a business owner who wanted to sell her business, and 3 men who were interested in acquiring her business as partners. I knew this woman's business was highly profitable, what I didn't realize going into the business was that she started her business only 8 years ago. At an asking price of $1.8M for her business, she has created over $200k per year in equity in her business! That does not even account for the positive cash flow she has enjoyed for those years. I believe that this is quite impressive for a small business. Yet, I meet business owners frequently who do not seem to be aware of the decisions they make and how it may impact the equity that they are building in their business. Here are some of the things that I have seen business owners do that will inhibit their ability to realize equity in their business down the line when the go to sell their business. Having a personalized name for their business - "Interiors by Irene", or "LMS Consulting" may be difficult businesses to sell. A business owner should decide if they are merely self-employed, or if they are a business owner, and name the business consistent with their goals. Dependency on the owner - a prospective business buyer does not want to buy a business that is too dependent on the skills and relationships of the owner. Can your business continue to prosper without you? Do you have systems and documentation in place that will allow your business to operate if you went on an extended vacation, or (god forbid) became ill? Cash under the table - There is sometimes temptation for business owners to accept cash and not document the transaction. While this may help your situation with the IRS, it will certainly not make your business more attractive to a buyer. Business buyers will seldom accept the owner's estimate for "cash under the table". Plan for growth - As long as you own your business, you should be thinking of ways to grow your business. Prospective buyers will want to know the opportunities for growth in the business. Buyers are seldom interested in a business they believe is "maxed out". The equity you are building in your business could be an important component of your overall financial position. Decisions you make regarding your business could have a substantial impact when you want to realize the equity in your business. ...read more
By BizTrade of DuPage March 31, 2009
Making the decision to sell one's stocks can be very confusing if one is a novice. There are a number of factors that should be considered when selling stocks, such as what price one should sell the stocks for and when is a good time to put them on the market. ...read more
