1. Stop minimizing taxes; instead maximize reported profitability
Many small businesses utilize the cash-basis of accounting rather than the accrual basis. Doing so enables businesses to accelerate expenses into the current tax year and defer revenues to the following tax year. This is a very aggressive method of minimizing taxes, and it follows that this method minimizes earnings and unfortunately minimizes business valuations.
2. Eliminate excessive personal expenses and skimming cash
Similarly, if you run personal expenses through your business to minimize taxes, that practice is counterproductive to the value of your business. Although some of those expenses might be able to be “sold” as add-backs to arrive at seller’s discretionary earnings (SDE), buyers often fight those adjustments and lenders will not consider them at all in determining the value of the business
3. Stop expensing capital expenditures
There are a number of ways that the sale of a business can be structured.100% all cash deals are rare.In most cases, deals are created where a combination of cash, financing, stock, and/or earn-outs are used.The key to any structure is ensuring that it protects your financial legacy and is set up so that you are able to close an optimal deal with a premium buyer.
A growing economy, along with the below listed favorable trends driving today's M&A market, make it a good time to transition a business:
When it comes to selling a business, owners care about more than just money. In a survey of 315 business brokers and M&A advisors, representing 37 states, they indicate that cash at close is a key desirable for sellers, as is taking care of their employees. Getting out quickly and leaving a legacy are also highly valued. Results indicate that a relative minority of sellers are interested in employment contracts and other deal structures that keep them active in business.
Identifying your priorities when you make the decision to sell can lead to different exit plans.
Below are the results of what sellers care most about besides money in the survey:
An industrious, profitable business is more attractive to a buyer than a stagnant one. Continue running your business – and improving it – while looking for potential buyers. This requires hard work, but you’ll have the energy to accomplish this if you utilize a business broker and other professionals to help you sell the business.
Here are a few tips to keep your company in good shape during the sales process.