The Exit Strategy You Must Have If All Goes Right…
After a few years, you might find yourself with a successful home business. After a few more, you might find yourself sick of it and ready to retire, only to realise that you have no idea what to do with the business and all the customers who rely on you if you take that course of action. Here’s what you need to do to get out of your business without destroying it, and come away with a good nest egg.
Selling Your Business.
A business has more value than you might expect. As a rule, businesses are bought and sold for somewhere between one and two years’ worth of their profits. If you wonder why, consider that the person buying a business gets not only a proven business model, but also all the marketing materials and other intellectual property (trademarks, copyrights, patents), an existing customer base, and years of built-up goodwill.
Home businesses, however, can be more problematic to sell than other businesses, for the simple reason that they do not come with business premises. You might have the best luck allowing one of your larger competitors to do a ‘takeover’ of your business, in which they are mostly paying for your name, branding and customers. This can be lucrative for them, as they get to both eliminate a competitor and expand their own business at the same time.
You will need to put some effort in to make your business attractive to potential buyers — do some analysis on what each element of the business is worth. Show that you have made lots of sales in the past and will make many more in the future. Above all else, buyers are looking at your balance sheet, and the business’ potential for growth. They’re in this because they want their future earnings to be more than the amount they pay, and if you can demonstrate that they could make that happen quickly then they’ll have no reason not to buy.
Getting the Right Price.
Don’t sell your business to the first person who offers, however good their offer might sound — you need to get offers on the table from everyone you can think of who might be interested. You may even find that they’re quite willing to have a meeting with you as a group, and get into a little bidding war. Alternatively, if you already have staff, you may wish to offer them the option to bid too, providing them with a finance agreement. Before you do anything like this, though, it’s good to get your lawyer and your accountant to advise you on the best course of action.
You will do better on the price of your business if you’ve planned your sale in advance, instead of waiting to the last minute. The people who get the best prices are the ones who take years to sell their business, and are always prepared to walk away from the negotiating table.
Time to Skim.
One thing you need to remember when you sell your business is that if there are any shareholders other than yourself, they need to receive their percentage of the business’ final sale price. Depending on the terms of the agreement, you may have to buy their part of the business before you can sell it, or give them the option to buy your part before you offer it on the open market.
On top of that, you will also have to pay tax on the sale of your business. Always consider how much an offer is going to be worth to you after tax, not before.
Starting from a Powerful Position.
Once you’ve sold your business, there’s one thing left that you can do. With the lump sum you just got from the sale, you’re in a great position to start a new business! If the sale didn’t include your equipment, then it shouldn’t be too hard to get started again — and this time, you’ll have a lot of money to invest. Not only that, but you’ve proven yourself to be good to lend to, so any finance you need should be far easier to obtain.
Keep building businesses and selling them every few years, and you can quickly get hold of the resources to build something truly great. Good luck!